JCR-VIS assigns initial Entity Ratings to Shafi Texcel Limited

Karachi: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned an initial medium to long-term and short term entity ratings of ‘BBB’ (Triple B) and A-3 (A three), respectively to Shafi Texcel Limited (STL). The outlook on the rating is ‘Stable’.

STL is engaged in textile weaving and is the second largest company of Shafi Group after Muhammad Shafi Tanneries (Pvt.) Limited, a leader in goat skin leather in Pakistan. The group has a portfolio of 10 industrial corporate and a collective turnover of over Rs. 10b.

The year 2010-11 was exceptional for the textile sector in general amidst rising cotton prices in international markets and its subsequent impact on prices of textile products. In line with the industry trend, STL depicted robust profitability on the back of sound margins. The impetus was also provided by a larger share of value added yarn dyed fabric in sales, which features higher margins than traditional grey fabric.

Historically, sponsors have demonstrated support by providing subsidized/interest free loans in the absence of sufficient margins. However, these loans were fully retired in FY11 by partially replacing them with conventional banking lines, while the other portion was converted into equity.

The phenomenon is likely to have a positive effect on margins though the impact could be nullified by otherwise higher debt on books, at commercial lending rates. On the contrary, leverage indicators are on the lower side allowing for sufficient debt servicing capacity.

The ongoing year will remain challenging for the Pakistani textile sector due to low cotton prices, production bottlenecks and increasing competitive environment, but STL could somewhat offset this impact by enhancing the share of yarn dyed fabric in total sales as planned. The company is in the process of implementing an integrated ERP that would help in streamlining MIS and enhance efficiency levels.

For more information, contact:
Mr. Javed Callea
Advisor
JCR-VIS Credit Rating Company Limited
Tel: +9221 35311861 (10 lines) (Ext: 501)
Fax: +9221 35311872-3
E mail: javed.callea@jcrvis.com.pk