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Karachi, VIS Credit Rating Company has reaffirmed the Entity Ratings of Shahtaj Textile Limited (STL) at ‘A-/A-2’ (Single A Minus/A-Two), reflecting good credit quality and liquidity with a stable outlook. This announcement follows the previous rating action made on November 23, 2022.
According to VIS Credit Rating Company Ltd, the medium to long-term rating of ‘A-‘ suggests adequate protection factors, with risk factors subject to change based on economic shifts. The short-term rating of ‘A-2’ indicates a high likelihood of timely payment, underpinned by sound liquidity factors and company fundamentals, along with good access to capital markets and minimal risk factors. The outlook on these ratings is categorized as stable.
Shahtaj Textile Limited, a public listed company based in Karachi, specializes in the production of grey fabric. The company, which employs over 480 employees, operates a manufacturing unit in Kasur. STL’s energy needs are met through gas generators, a diesel backup, grid supply by WAPDA, and a plan to integrate a 1MW solar plant as part of their environmental initiatives. However, the local textile sector, including STL, faces a challenging business risk environment marked by a weak macro-economic climate, high interest rates, inflation, rising raw material costs, energy crises, and a global downturn in demand. This has led to a 10% year-on-year decline in Pakistan’s textile exports, falling to USD 16.7 billion.
STL’s ratings are bolstered by its over three-decade operational history, strong sponsor support, and limited reliance on imported yarn. However, the ratings are tempered by a high client concentration risk, with the top ten clients accounting for approximately 80% of total revenue. The company saw a revenue growth of about 9% in FY23, primarily due to increased volumes, crossing the Rs. 8 billion mark. Despite this, a 16% year-on-year decrease in net sales was recorded in 1Q’FY24. The weakening of cash flow coverage metrics and a potential increase in long-term debt due to the planned solar power plant installation are also noted in the ratings. STL maintains stable gearing and leverage ratios, but its future ratings depend on improving cash flow coverage metrics and maintaining capitalization.
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