JCR-VIS Reaffirms Entity ratings of Nishat (Chunian) Limited

Karachi, April 30, 2015 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Nishat (Chunian) Limited (NCL) at ‘A-/A-2’ (Single A Minus/A-Two). Rating of the privately placed term finance certificate of Rs. 500m has also been reaffirmed at ‘A’ (Single A). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on May 30, 2013.

NCL is regarded as a well-established entity operating in the textile sector of Pakistan. During FY13 the textile industry exhibited strong growth primarily in export business. In commensurate with higher global demand, NCL initiated capacity expansion, resulting in a net increase of around 60,000 spindles. However, subsequently the pace of growth in the textile industry slowed down in FY14 onwards.

Financial profile of NCL remained under pressure in the face of falling prices and constrained demand. Pace of growth in sales marginalized while gross margins declined on account of increasing costs and exchange rate fluctuations. Moreover, the company underwent writing down of inventory to net realizable value of procured cotton in FY14. Net profit, though declined considerably, had a material support in terms of dividend income received from Nishat Chunian Power Limited (NCPL), in which the company holds a 51% stake. NCPL is an independent power producer, with a fuel oil fired power station having gross capacity of 200 MW.

While in lieu of expansion, debt leverage increased during FY14, it increased further on account of enhanced working capital requirement during 1HFY15. While cash flows remained stressed from core operations, dividend income from a subsidiary company provides a sustainable source of support to coverages. In order to reduce debt leverage, the company has proposed a rights issue recently which is expected to enhance the equity base by Rs. 1b.

NCL has established a wholly owned subsidiary, NC Electric Company Limited (NCECL), which is located adjacent to its plant in Bhai Peru. This will guarantee a steady supply of power at a lower cost, and also provide support to margins through additional sales. Commercial operations are expected to commence by March 2016. Going forward, NCECL may also provide support to cash flows with additional dividend income.

For more information, contact:
Ms. Sobia Maqbool
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk