AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Karachi, VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Blessed Textiles Limited (BTL) at ‘A/A-1’ (Single A/A-One) with a stable outlook. This reaffirmation reflects BTL’s commendable credit quality and strong protection factors in the medium to long term, coupled with a high certainty of timely payment in the short term. Despite various challenges in the global and local textile industry, BTL maintains its strong position with a diversified client base and robust financial practices.
The ‘A’ rating for BTL signifies good credit quality and adequate protection factors. It takes into account the company’s 36-year history of excellence in yarn and fabric production and trade, both in domestic and international markets. Furthermore, BTL’s strong sponsor group, loyal client relationships, notable governance standards, and recent capacity expansion efforts contribute to its solid financial standing.
The reaffirmed ratings also underscore BTL’s resilience in the face of changing market conditions. Strong revenue growth has been achieved, even as export volumes have declined due to rupee depreciation. The company’s low-leverage capital structure sets it apart from its peers in the industry. However, BTL has faced challenges such as increased reliance on imported cotton, declining yarn profits, and broader economic and operational difficulties, which have caused margins to return to historical averages.
Additionally, a shift in cash flow patterns and a rise in debt levels have resulted in reduced debt coverage metrics and an extended cash conversion cycle due to higher inventory holding periods. These factors have intensified BTL’s short-term financing needs. The company also faces challenges associated with a high-interest rate environment, inflationary pressures, rising raw material costs, and an ongoing energy crisis in Pakistan.
The global textile industry has seen a slump in demand, with Pakistan’s textile exports declining by 15% year-on-year in FY23, totaling USD 16.5 billion compared to USD 19.3 billion in FY22. These challenges pose a significant hurdle for the sector in terms of maintaining sustainable margins and future growth. The ratings for BTL are influenced by the current weak macroeconomic conditions, both locally and globally.
In a bid to enhance its capacity, BTL launched a new spinning facility, unit-IV, in Sheikhupura, Punjab, in March ’23. This facility boasts 13.1K spindles and produces 450 bags of coarse count yarn daily, primarily for local markets. The project, valued at Rs. 2.7 billion, was financed through a 55:45 debt-to-equity ratio, with machinery funded by LTFF loans and building construction covered by internal funds. Management anticipates a 25% increase in annual sales and cost efficiencies through automation and current staff managing the new project.
Yarn accounts for over 70% of BTL’s total sales, with the remaining share attributed to fabric. The sales mix has seen an average 46:54 ratio of exports to local sales, with fabric favoring the domestic market in the current fiscal year. BTL maintains a diverse export footprint, with Portugal being a significant market for fabric sales and China leading in yarn exports. Other notable markets include Russia, Bangladesh, Italy, Belgium, Japan, Spain, and Turkey. To mitigate risk, management ensures that no single client, except for group entity Faisal Spinning Mills, accounts for more than 5% of total sales.
Looking ahead, the ratings for Blessed Textiles Limited will be contingent on its ability to improve margins, cash flows, and debt coverage ratios as it navigates the challenges of the textile industry in a changing economic landscape.
The post VIS Reaffirms Entity Ratings of Blessed Textiles Limited at ‘A/A-1’; Outlook Remains Stable appeared first on Pakistan Company News.