Breaking News

VIS assigns Initial Entity Ratings to Denim Clothing Company

Karachi, March 17, 2021 (PPI-OT): VIS Credit Rating Company Ltd. (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B /Single A-Two) to Denim Clothing Company (DCC). Outlook on the assigned ratings is ‘Stable’. Long term rating of ‘BBB’ signifies adequate credit quality with sufficient and reasonable protection factors. Risk factors are considered variable if changes occur in the economy. Short Term Rating of ‘A-2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals. Access to capital markets is good. Risk factors are small.

Denim Clothing Company was established as a sole proprietorship firm in 2005. The firm is engaged in the manufacturing of denim garments. Assigned ratings incorporate diversified experience of the sponsoring group- Machiyara Group of Companies, which has known presence in the construction, textile, packaging, chemicals and tyre sectors. Group companies include Denim Clothing Company, Han Apparel, Denim Clothing (Pvt) Limited, SH Packages (Pvt) Limited, H2 Ready Mix, HS Create, H and H Agro, Bond Chemicals and Bond Tyres. Given the firm’s shareholding structure and involvement of owners in management roles, status of being a sole-proprietorship concern, independent oversight needs to be introduced. The company procures around 60% of its denim fabric requirement from its sister concern-Hantex. DCC is also currently in the process of corporatization and plans to become a private limited company by June 2021.

Ratings also take into account moderate business risk profile supported by stable and growing demand for denim products. VIS expects demand for denim products to remain stable over the medium term. Given the favourable policies and incentives of the government on enhancing exports and trade disruption between US and China, there is significant opportunity for local players to enhance exports. Increased expansion by leading denim and non-denim textile players is also on account of favourable demand and expected increase in orders. Even though impact of Covid-19’s second wave remains elevated, we expect the order book for the industry to remain strong in the ongoing year, easing our business risk concerns.

Rating incorporate double-digit growth in sales revenue over the past three years led by volumetric increase in sales, higher average selling prices due to currency devaluation and shift towards higher value added fashion segment. Going forward, as a result of projected increase in production capacity, sales revenue is expected to depict growth; the same is contingent upon uplifting of lockdown in Europe which is a key sales market. Ratings also take into account improving gross margins on a timeline basis largely due to higher margins emanating from value-added fashion segment and currency devaluation. On the flip side, overall profitability of the firm has declined on account of higher finance cost incurred on elevated borrowings. Going forward, post expansion, profitability levels are expected to improve with increase in efficiency and reduced overall expenses.

Assessment of the liquidity profile depicts room for improvement given declining cash flow coverages in relation to outstanding borrowings on a timeline basis on account of extended working capital cycle. Consequently, given high working capital requirements, leverage indicators of the firm are on the higher side. Albeit having a subdued affect in overall capitalization profile, leverage indicators are expected to improve on the back of planned equity injection by sponsors during 1QFY22. Ratings remain dependent on improvement of liquidity and capitalization profile, going forward.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/

The post VIS assigns Initial Entity Ratings to Denim Clothing Company appeared first on Business News Pakistan.

Check Also

The Global Observance of World Cities Day 2024 opens in Egypt

Shanghai Coordination Center of World Cities Day ALEXANDRIA, Egypt, Oct. 31, 2024 (GLOBE NEWSWIRE) — The Global Observance of World Cities Day 2024 opened in Egypt’s Alexandria on Thursday, which unveiled the English version of the Shanghai Manual · 2024 Annual Report and the Global Award for Sustainable Development in Cities (Shanghai Award). A Media Snippet accompanying […]