Karachi, July 14, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Rajby Textiles (Private) Limited (RTPL) 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 supported by sound liquidity and company fundamentals. Access to capital market is good and risk factors are small. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on June 08, 2022.
Ratings reflect RTPL’s extensive expertise in denim fabric production (with operations including weaving and finishing), strong export orientation and minimal reliance on imported yarn. Ratings reaffirmation factors in strong revenue growth in FY22; however, recent demand slowdown significantly affected volumetric off-take this fiscal year. Ratings also take note of improved profitability margins achieved over the review period by implementing effective cost-cutting measures (such as staff layoffs and decreasing freight charges primarily driven by the shift in sales mix towards indirect exports). Debt coverage metrics remain aligned with peers and liquidity profile is adequate with slightly elevated cash conversion cycle.
Leverage ratios have improved, showing a slightly favourable comparison to similar-rated peers. 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 slowdown in the current year pose risks to the sector over the medium term. The same is reflected in ~14% YoY decline in 10 months’ textile export proceeds (in value terms). Ratings are constrained by the current weak macroeconomic environment globally and locally.
Entire revenue emanates from exports, including both direct and indirect channels. Over time, there has been a clear shift towards indirect exports, which refers to domestic sales. On average, about three-fourth of total revenue is generated from local sales, while direct exports make up the rest. Rajby Industries, an associated company, consistently contributes one-third of sales revenue. This along with top-ten clients consistently generating over two-third of revenues on both export and local front, result in high client concentration risk. Geographic wise, majority of exports are currently focused on Bangladesh and Turkey; however, management has plans to expand its target markets to include regions such as South America and Europe in the future. Ratings remain dependent upon improving topline while maintaining margins, debt coverage and leverage ratios.
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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