VIS Maintains Entity Ratings of Kohinoor Mills Limited with Stable Outlook.

Karachi: VIS Credit Rating Company Limited (‘VIS’) has maintained the entity ratings of Kohinoor Mills Limited (‘KML’ or ‘the Company’) at ‘BBB+/A2’ (Triple B Plus/A Two). The medium to long-term rating of ‘BBB+’ indicates adequate credit quality, with reasonable and sufficient protection factors, although risk factors could vary with economic changes. The short-term rating of ‘A2’ reflects a good likelihood of timely repayment of short-term obligations, backed by sound short-term liquidity factors. The outlook on the assigned ratings has changed to ‘Stable’ from ‘Positive’, following the previous ratings action announced on August 30, 2023.

According to VIS Credit Rating Company Limited, Kohinoor Mills Limited was incorporated in 1987 as a public limited company and is listed on the Pakistan Stock Exchange Limited. The company is primarily engaged in textile manufacturing, including weaving, bleaching, and dyeing of fabric. It also trades in yarn, cloth, and other goods made from raw cotton and synthetic fiber, alongside generating and supplying electricity. The production facilities and registered office of the company are located at 8-K.M., Manga Raiwind Road, District Kasur, with the marketing office situated in Karachi.

The assigned ratings take into consideration the business risk profile of the textile sector, which faces significant exposure to economic cyclicality and intense competition. The sector’s performance is heavily influenced by broader economic conditions, making it vulnerable to demand fluctuations driven by economic factors. The industry’s performance is closely linked to the outlook of the cotton and textile industries, both of which were affected in FY23 and FY24. Factors such as a reduction in cotton supply, a global economic slowdown, and contractionary economic policies led to a decrease in demand for textile products, particularly cotton yarn. Although the global outlook for cotton production is positive, with an expected rebound in production, local challenges persist. However, expectations for a better cotton crop in FY25 may alleviate some pressure on input costs and margins.

The ratings also consider the company’s profitability, capitalization, liquidity, and coverage profiles. Despite declining export volumes, revenue growth is supported by an increasing contribution from local sales. However, profitability margins have been impacted during FY24 due to rising raw material and energy costs, along with higher finance costs. The decline in profitability resulted in a contraction in cash flows, negatively affecting debt service coverage, although the capitalization profile remained largely intact. Going forward, achieving projected profitability metrics and maintaining the capitalization profile will be crucial for the assigned ratings.

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