Karachi, December 13, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB-/A-2’ (Triple B Minus/A-Two) to Sohail Textile Mills Limited (SOT). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned ratings is ‘Stable’.
SOT is a part of Ayesha Group, which is primarily involved in local yarn spinning industry. The company has a spinning unit where blended polyester-cotton (PC) and chief-value-cotton (CVC) yarn of counts ranging from 10/1 to 36/1 are made. Shareholding of the company is vested with the sponsoring families. The assigned ratings take into account extensive experience, spanning nearly half a century, of the sponsoring family, and established relations with customers. Customer concentration risk is considered manageable while risk of bad debts is low as the company makes major portion of sales on cash.
The ratings factor in sustained revenue and improvement in profit margins, led by marginal increase in production, and favourable yarn pricing. Given considerable decline in the country’s cotton produce this year, the company is planning to import nearly half of cotton required which would expose it to foreign exchange risk. Liquidity position of the company is underpinned by increasing cash flows generation, while current ratio has remained largely stable. The company’s capacity to meet its financial obligation is considered adequate. However, given relatively small equity base and presence of subordinated loan from the directors, the leverage indicators are relatively high, though some improvement was noted by end-FY19. The ratings are sensitive to any considerable change in profitability, debt service coverage and leverage indicators.
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
Category: General Business News