Pakistan Credit Rating Agency Limited assigns entity ratings to Liberty Mills

Lahore, June 15, 2016 (PPI-OT):PACRA has assigned a long term rating of “A+” (Single A Plus) and short-term rating of “A1” (A One) to Liberty Mills Limited. The ratings denote a low expectation of credit risk emanating from strong capacity for timely payment of financial commitment.

Liberty, a family owned textile company, operates in value added segment – processing of fabric and made ups. While this insulates it against volatility in cotton prices, the company’s resilient business profile emanates from core operations featured by strong business margins. Liberty, with an export market orientation, focuses on its established niche of quality-conscious institutional buyers; garnering healthy margins. Although this has led to customer concentrations, longevity of relationship in addition to sustained quality helps manage the risk.

This has helped the company to sustain its performance despite deterioration in local textile sector fundamentals. The company’s performance is augmented by recurring dividend stream from investment in an IPP – Liberty Power Tech. Liberty’s borrowings are primarily a function of its working capital need, whereas it has limited long-term debt. This has yielded a strong financial risk profile also supported by healthy cash flows, in turn, debt service coverages.

While the company’s CAPEX plan reflects its conservative growth strategy, the leveraging is expected to remain moderate. Working capital cycle is relatively stretched, though in line with peers. Any improvement will bring efficiency gains. Long associated and experienced management team adds comfort; however, governance framework needs improvement. Going forward, the sponsors – Liberty Group – intend to expand in power sector while setting up holding company structure in the medium term.

The ratings are dependent on the management’s ability to sustain its overall profile. Meanwhile, utilization of lately beefed up capacities is considered important. Going forward, continuation of dividend/other income stream vis-a-vis strengthening of governance framework will have positive implication on ratings.

For more information, contact:
Hammad Rashid
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com