Karachi, January 14, 2022 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Shahtaj Textile Limited (STL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 29, 2020.
Ratings reaffirmation incorporates healthy sales recovery posted during the review period with continued improvement in profitability margins. The same has resulted in sound cash flow generation with significant improvement in debt coverage metrics and leverage indicators. Moreover, ratings continue to factor in STL’s strong group strength and established track record of two decades in the weaving business. The group with extensive experience of more than six decades has presence in diversified sectors including sugar, food, agricultural and engineering.
The company is currently operating at total installed capacity of 64.6m sq. meters (looms installed: 178). Given sizeable jump in export orders and strong demand outlook, the management has planned to replace 49 existing looms at a total capex of Rs. 500m; entire cost is being financed through TERF facility. As per management, post capex overall production capacity is expected to increase by ~10% and the project is expected to come online in the ongoing fiscal year.
The recovery in sales is attributable to both volumetric growth and higher average selling prices while the improvement in margins is mainly due to efficient yarn procurement, operational efficiencies and the impact of rupee devaluation. Proportionate share of exports (direct and indirect) to local sales stood at 50:50 ratio. Client-wise sales concentration remains on the higher side with top ten clients constituting more than three-fifth of total sales (with 40% shared by 2 local clients). Ratings remain dependent on continued maintenance of sound performance and financial indicators. Going forward, new emerging Covid-19 variants (such as Omicron) and uncertainty of its local and worldwide impact on overall economy and political environment are the key present business risk factors.
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