Karachi, VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Asher Imran Spinning Mills (Private) Limited (AISML) at 'A-/A-2', reflecting its sound credit quality and stable outlook despite the spinning sector facing significant economic challenges.
According to VIS Credit Rating Company Limited, the medium to long-term rating of 'A-' signifies good credit quality with adequate protection factors, though subject to changes in the economic environment. The short-term rating of 'A-2' indicates a strong likelihood of timely payment, supported by robust liquidity factors and solid company fundamentals, along with good access to capital markets.
AISML, a yarn manufacturer operating a spinning unit in Kasur and headquartered in Lahore's Industrial Estate, benefits from the backing of its sponsor, Comfort Knitwears (Private) Limited (CKPL). CKPL's over three decades of experience in dyed yarn and knitted garments, along with its association with the diversified 'Comfort Group', contributes to the operational, managerial, and financial support of AISML.
The ratings also consider the spinning industry's business risk profile, characterized by cyclical economic factors and competition. In FY23, the sector was impacted by damaged cotton crops, inflation, and foreign exchange constraints, leading to reduced yarn production and profitability. The global outlook for cotton production is expected to improve slightly, yet local challenges like high interest rates, escalating energy costs, and difficulties in obtaining letters of credit persist, potentially hindering the sector's performance in FY24.
Despite these challenges, AISML managed to sustain its gross and operating margins by passing higher costs onto customers. However, net margins were impacted by increased finance costs due to higher policy rates and short-term debt drawdowns. The company's capitalization profile showed some deterioration, with plans to improve cash conversion cycles, reduce short-term debt, and maintain capitalization in line with the assigned ratings.
VIS noted that AISML's liquidity and coverage profiles weakened due to a widening working capital gap and increased financial burden, resulting in a decrease in funds from operations and debt servicing coverage ratio. The future ratings will depend on the company's ability to execute its projected plans and improve its liquidity and coverage profiles, along with maintaining a capitalization profile commensurate with its ratings.
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