Karachi, June 22, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Rajby Industries (RI) at ‘A-/A-2’ (Single A Minus/A-Two). Medium to long-term rating of ‘A-’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in economy. Short term rating of ‘A-2’ indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital market is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on June 07, 2022.
Ratings take into account RI's extensive experience of over 30 years in stitching and processing operations for exporting denim garments, as well as its strong export orientation, minimal dependence on imported raw materials, major global brands as customers, and dedication to environmentally-friendly manufacturing practices. Ratings reaffirmation reflects strong revenue growth in FY22; however, the recent demand slowdown due to the economic downturn in major world economies led to a sizeable dip in volumes and impacted growth this fiscal year.
Ratings also take note of improved gross margins and increased net profitability through effective cost control and limited financial charges. Declining debt levels and positive cash flow trends have led to a healthy improvement in debt coverage metrics. The liquidity profile remains satisfactory, supported by consistent improvement in the current ratio and favourable cash conversion cycle. Leverage ratios have also improved, showing a slightly favourable comparison to similar-rated peers.
Almost the entire revenue emanates from exports, with only wastages being sold locally. Product-wise, trousers and shorts drive the majority of revenues accounting for more than ~90% of total exports on a timeline, while the rest is shared by dungarees, skirts, shirts, jackets, vests, dresses, jeggings, chinos, and others. The geographical sales mix is well-diversified, with the US representing one-quarter of total sales, followed by Spain, Germany, Canada, Netherlands, and the UK.
Client concentration risk remains high, with the top ten clients contributing over 80% of total sales; however, comfort is drawn from established long-term relationships with these clients including some of the top global brands. The 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, and demand slowdown in the current year pose risks to the sector over the medium term. Ratings are constrained by the current weak macroeconomic environment globally and locally.
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: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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