Sohail Textile Mills Limited Ratings Reaffirmed by VIS

Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Sohail Textile Mills Limited at ‘BBB-/A2’.

According to VIS Credit Rating Company Limited, the medium to long-term rating of ‘BBB-‘ indicates adequate credit quality with reasonable protection factors. The short-term rating of ‘A2’ suggests a good likelihood of timely repayment of short-term obligations. The outlook on the assigned ratings remains ‘Stable’, consistent with the previous ratings action announced in December 2023.

Sohail Textile Mills Limited, a public unlisted company, is primarily engaged in the manufacturing and marketing of yarn. The company operates its registered office in Karachi, with its head office located in Lahore. Its manufacturing facilities are situated in District Sheikhupura, Punjab.

The reaffirmed ratings reflect the business risk profile of Pakistan’s textile spinning sector, which faces demand-side challenges and supply-side constraints such as raw material availability and energy shortages. Despite an increase in domestic cotton production in FY24, reducing reliance on imports, elevated energy tariffs have impacted operational costs. The sector also faces competitive pressures from regional peers and macroeconomic challenges, including currency depreciation and high inflation. Regulatory uncertainties, especially the removal of preferential energy tariffs for export-oriented sectors, have introduced additional risks. The company manages relationships with key clients to mitigate revenue concentration risks.

Financially, the company’s profitability has been constrained by increased energy and raw material costs, although higher prices and product diversification have grown the topline. The gross margin contracted; however, gains from the disposal of fixed assets and reduced finance costs led to a marginal net margin improvement. The capitalization profile shows manageable gearing and leverage levels, despite increased short-term debt utilization for working capital needs. Liquidity metrics have improved due to internal cash flows and efficient working capital management, with recovery in coverage ratios supported by declining finance costs and long-term debt obligations.

Future ratings will depend on the company’s ability to address ongoing challenges, such as energy costs, competitive pressures, and regulatory changes, with improvement in key financial metrics being essential for maintaining the current ratings.

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