Karachi, May 29, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of M.K. Sons (Private) Limited at ‘A-/A-2’ (Single A Minus/A-Two). Medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in economy. Short-term rating of ‘A-2’ reflects good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned rating remains ‘Stable’. Previous rating action was announced on April 22, 2022.

Ratings continue to incorporate the company's family-owned structure, 35-year operating history, specialization in value-added fabrics, home-textile products, and denim garments, and a diversified client base. Moreover, strong export orientation and minimal reliance on imported yarn or fabric are viewed positively. Ratings reaffirmation reflects strong revenue and capitalization growth, with satisfactory debt coverage metrics throughout the review period. However, recent global demand slowdown, increased operating overheads and escalated finance cost have affected net profitability and cash flows in the current fiscal year. In addition, cash conversion cycle is elevated and leverage ratios though depicted slight improvement remain on the higher side.

Export to local sales breakup has remained consistent at 88:12 in the past two years. Product-wise, home textile made-ups represent more than half of the revenue mix, followed by processed fabric, denim garments and greige fabric. Europe, representing three-fifths of total exports, remains the primary export market with Italy, Germany, Spain, and France being the major destinations. The rest is diversified among US, Asia and Middle Eastern countries. Moreover, client base is sufficiently spread out, with no single client contributing more than 10% to total sales, mitigating the concentration risk.

Business risk profile takes into account industry wide growth in exports in FY22; however, recent floods across the country, high interest rate situation, inflationary pressures, higher electricity costs and demand slow down pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally. Going forward, improvement in net margins, cash flows and leverage ratios are important for sustenance of ratings.

For more information, contact:

Director Compliance and Rating Analytics,

VIS Credit Rating Company Limited

VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,

Phase VII, DHA, Karachi, Pakistan

Tel: +92-21-35311861-72

Fax: +92-21-35311873

Email: [email protected]

Website: https://www.vis.com.pk/

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