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Karachi, 10 Oct 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the instrument and entity ratings of Sadaqat Limited (SL) at ‘A’ (Single A) and ‘A/A-2’ (Single A/A-Two), respectively. The medium to long-term rating of ‘A’ reflects strong credit quality and adequate protection factors, with risk factors subject to economic fluctuations. The short-term rating of ‘A-2’ indicates a high likelihood of timely payments, supported by sound liquidity factors and robust company fundamentals.
The outlook for the assigned ratings remains ‘Stable,’ and this reaffirmation follows the previous rating action announced on June 22, 2022.
These ratings affirm Sadaqat Limited’s established track record in the value-added textile sector, particularly in home textiles, knit apparel, denim, and non-denim woven outfits. The company has also made strategic moves towards backward integration into weaving and spinning capacity, aligning with eco-friendly manufacturing practices.
The ratings recognition highlights consistent revenue growth, influenced by rupee depreciation, substantial equity infusion, and profit retention, which have maintained leverage metrics in line with industry peers. However, increased borrowing costs have impacted net margins and cash flows, contributing to higher debt levels and a weakened debt service coverage ratio compared to industry benchmarks.
Challenges facing the company include extended inventory cycles, a current ratio below 1.0x, and the broader macroeconomic environment characterized by high-interest rates, inflationary pressures, rising raw material costs, and energy supply issues. Additionally, a global decline in demand resulted in a 15% year-on-year decrease in Pakistan’s textile exports in FY23, totaling USD 16.5 billion (FY22: USD 19.3 billion).
Sadaqat Limited’s integration into weaving and spinning capacities is seen as a strategic move to manage operational risk within the supply chain, with results expected to materialize in due course. Home textile products account for over 70% of revenues, with exports being a dominant sales component, although there is some client concentration in the UK.
The future trajectory of the ratings will be influenced by improvements in cash flows, debt coverage, and liquidity metrics as Sadaqat Limited navigates the challenges posed by the current economic environment.
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