Karachi, Lucky Textile Mills Limited (LTML), a key player in Pakistan's textile industry, has successfully maintained its strong credit ratings, reflecting its robust financial position and operational stability in a challenging economic environment.
According to VIS Credit Rating Company Limited, LTML's medium to long-term entity rating has been reaffirmed at 'AA-', indicating high credit quality with strong protection factors and modest risk that may vary with economic conditions. Its short-term rating stands at 'A-1', denoting high certainty of timely payment supported by excellent liquidity factors and solid fundamental protection factors. The outlook on these ratings is assessed as 'Stable', following the previous rating action announced on December 19, 2022.
LTML, a public unlisted company, is a part of the Yunus Brother Group (YBG) and is wholly owned by Y.B. Holdings (Private) Limited. YBG is recognized as a leading conglomerate in Pakistan, with a strong financial profile and diversified interests across various sectors, including power generation, building materials, real estate, textile, chemicals, pharmaceuticals, food, entertainment, and automotive sectors. As a vertically integrated textile company, LTML's operations span spinning, weaving, processing, and stitching of a diverse range of textile products. The company's operations are centralized in Karachi, with its head office and factories for spinning, weaving, processing, and stitching located in the city.
The ratings by VIS take into account LTML's strong sponsor profile, diversified strategic investment portfolio, and future dividend stream potential from the Lucky One Project, which includes both a mall and residential towers. Additionally, the company's backward integration with the introduction of a spinning segment and investment in alternate energy resources have further bolstered its business profile. The ratings also reflect LTML's moderate growth in topline, historic high margins, improved cash-flow coverage indicators, and strong liquidity and capitalization profile.
Despite facing challenges such as PKR devaluation and a notable decline in volume, LTML has achieved moderate growth in its topline. The company's size, however, remains notably lower compared to its industry peers. The ratings also consider the strategic addition of a spinning unit and reduced reliance on imported cotton, which have contributed to an increase in margins. The company's strong profitability has led to substantial growth in Funds from Operations (FFO) and improved cash-flow coverage metrics. Although the Debt Service Coverage Ratio (DSCR) has been affected by elevated finance costs and principal repayments, it continues to outperform industry peers. LTML's leverage ratios have improved, favorably positioning it compared to peers, thanks to strong growth in the equity base and a reduction in debt.
Going forward, the maintenance of margins, cash flow, debt servicing coverage indicators, and leverage ratios will be crucial for LTML's ratings.
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