VIS Maintains Entity Ratings of Metco Textiles Private Limited.

Karachi: VIS Credit Rating Company Limited (VIS’) has maintained the entity ratings of Metco Textile Private Limited (“MTPL” or “the Company”) at ‘A-/A2’ (Single A minus/A-Two). Medium to long-term rating of ‘A-‘ indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A2’ suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remains ‘maintained’. Previous ratings action was announced on October 06, 2023.

According to VIS Credit Rating Company Limited, MTPL, incorporated in 2008, is a private limited company primarily engaged in the spinning of yarn for the local market and export. The product line includes various types of yarn such as cotton carded ring spun yarn, CVC yarn, PC yarn, and open-end yarn for the weaving and knitting industry. The Company operates four yarn manufacturing units with a total spindle count of about 59,840 at the end of FY24. MTPL’s head office is located in Karachi, while the manufacturing unit is situated in Nooriabad, near Karachi.

The assigned ratings consider the medium-to-high business risk profile of the textile sector in Pakistan. Industry dynamics reflect exposure to economic cyclicality, global competition, and geopolitical challenges, particularly impacting export-oriented businesses. Business risk is further influenced by local and international economic conditions and dependency on imported raw materials, creating vulnerabilities related to exchange rate volatility and import restrictions. In addition, delays in government sales tax refunds contribute to liquidity pressures. Supply-side constraints, including domestic cotton production levels, also impact profitability and margins within the sector.

The assigned ratings also consider the Company’s financial profile. Profitability growth in FY24 was driven by increased sales volumes, with demand from weaving mills and CVC customer segments boosting revenue. However, elevated input costs, particularly fuel and power costs, affected the gross margin. Capitalization showed a reduction in gearing levels due to lower short-term debt utilization, although leverage increased as the Company managed its working capital through management of the cash conversion cycle. Coverage indicators, including DSCR and FFO ratios, show improvements driven by higher funds from operations, supported by higher non-cash expenses. Although the current ratio has decreased due to an increase in the current portion of debt from elevated long-term borrowings for capital expenditure requirements, it remains commensurate with assigned ratings.

Going forward, ratings remain sensitive to the Company’s ability to manage net margins amid elevated finance costs and input price pressures. However, likely interest rate reductions are expected to positively influence net margins, aiding in finance cost reduction.

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