Karachi, November 16, 2020 (PPI-OT): VIS Credit Rating Company Limited has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to Artistic Apparels (Private) Limited (AAPL). Long Term Rating of ‘BBB+’ denotes good credit quality and reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short Term Rating of ‘A-2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
AAPL deals in manufacturing and exporting of denim garments. Assigned ratings incorporate extensive experience of the sponsors in the textile and denim segment. Ratings also take into account moderate business risk profile supported by stable and growing demand for denim products. VIS expects demand for denim products to remain stable over the medium term. Given the favourable policies and incentives of the government on enhancing exports and trade disruption between US and China, there is significant opportunity for local players to enhance exports.
However, local and international expansion by major players is expected to keep pricing power and hence margins in check. Moreover, significant investment required by customers as part of sustainability initiative is expected to add to cost pressures for denim manufacturers. Increased expansion by leading denim and non-denim textile players is also on account of favourable demand and expected increase in orders.
AAPL operates through 2 facilities/units located at Korangi and Landhi in Karachi, Pakistan. Capacity utilization has been increasing on a timeline basis and was reported at 83% (FY19: 78%) during FY20. Besides expansion in existing capacity, the Company also plans backward integration of operations to meet its fabric requirements along with selling the unutilized fabric in the export and local market.
Assessment of financial risk profile depicts adequate profitability, liquidity and capitalization indicators although size of equity is on the lower side despite equity injection during FY20. Sales revenue of the Company depicted an increasing trend over the last two years. While historical trend in gross margins has remained volatile and erratic, increase in the same along with growth in revenues has translated into improved profitability on a timeline basis. Going forward, management expects momentum in profitability growth to continue given enhanced capacities, and continued focus on value addition.
Liquidity profile of the company is considered adequate with satisfactory debt servicing ability and sufficient cushion of short term borrowings through stock in trade and trade debts. Going forward, ratings remain dependent on maintaining strong debt servicing coverage given projected increase in long term debt to finance expansion. While leverage indicators are projected to increase on account of additional debt to fund expansion, leverage indicators are expected to remain within manageable levels. Future trend with respect to the same will be an important rating consideration.
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