VIS Reaffirms Entity Ratings of Artistic Milliners (Private) Limited

Karachi, December 02, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Artistic Milliners (Private) Limited (AML). Long Term Rating of ‘AA-’ reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 01, 2019.

Assigned ratings take into account AML’s strong financial and moderate business risk profile. Business risk profile of the denim industry is supported by stable and growing demand for denim products; US-China Trade disruption has enhanced sales as major buyers continue to diversify procurement. Even though concerns of a second wave of Covid-19 remain elevated, we expect the order book for the company to remain strong in the ongoing year, easing our business risk apprehensions. Moreover, increased expansion by leading denim and non-denim textile players is also on account of favorable demand and expected increase in orders. AML is well positioned to tap this opportunity given the recently completed expansion in all three segments.

Assessment of financial risk profile incorporates healthy profitability indicators, strong liquidity profile and sound capitalization levels. Gross profitability improved during the outgoing year due to rupee devaluation and enhanced efficiencies. Subdued growth in net profitability was noted on account of no support of income from subsidiaries and limited exchange gains. Going forward, AML considers itself well-positioned to surf across the second wave of COVID-19 by maintaining its focus towards volumetric growth of basic fabric and garments.

Consequently, management envisages healthy growth in sales revenue going forward through higher projected sales volumes. Liquidity profile of the company is considered strong in view of healthy cash flows, sizeable liquid assets carried on balance sheet and strong debt servicing ability. Despite higher debt drawdown to fund increasing working capital requirements, leverage indicators remained at preceding year levels due to limited dividend payout and higher retained earnings. Going forward, with limited debt drawdown and projected increase in equity base, leverage indicators are projected to improve. The assigned ratings remain dependent on maintaining projected financial indicators within benchmarks for the assigned ratings.

AML is one of the leading denim fabric and garment manufacturers and exporters with vertically integrated operations in Pakistan. The company deals in manufacturing of yarn, denim fabric and denim garments. Over the years, the management has placed significant focus on sustainability initiatives. AML owns Pakistan’s first LEED (Leadership in Energy and Environmental Design) Certified Garment Factory. Sales mix of the company is almost entirely export oriented with revenues comprising a mix of denim fabric and garments. During the outgoing year, AML completed expansion in its spinning and weaving divisions.

Going forward, the company plans to invest in a new processing unit for white fabric that will diversify sales. Albeit subdued support from the subsidiary operating a wind power plant; projected annual dividend income from the subsidiary is expected to continue to support the company’s profitability and diversify revenue streams. Going forward, the company plans to further diversify in the renewable energy segment. Assigned ratings incorporate extensive experience of sponsors and strong franchise enjoyed by AML in the denim sector.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873

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