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Karachi, June 20, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Kamal Textile Mills (Pvt.) Limited (KTML) at ‘A-/A-2’ (Single A Minus/A-Two). Medium to long-term rating of ‘A-’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in economy. Short term rating of ‘A-2’ indicates good certainty of timely payment; liquidity and fundamental factors are sound. Access to capital market is good and risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on April 25, 2022.
Ratings factor in KTML’s 13-year expertise in processing and stitching operations for exporting home textile made-ups, garments, and processed fabrics along with recent capacity enhancement efforts, and strong export orientation with limited reliance on imported raw materials. Ratings reaffirmation reflects strong double-digit growth in revenues for three consecutive years and sound capitalization levels driven by all-out profit retention over time. However, recent economic downturn in major world economies resulted in a significant decline in sales volume this fiscal year. Ratings further take note of improvement in gross margins but high financial charges and increased operating overheads led to a declining trend in net margins.
Leverage and debt coverages despite the weakening have remained at manageable levels while timeline increase in average debtor and inventory holding days have stretched cash conversion cycle, indicating a need for improvement in liquidity profile. Business risk profile takes into account industry-wide growth in exports in FY22; however, recent floods across the country, high interest rate situation, inflationary pressures, higher electricity costs, and demand slowdown in the current year pose risks to the sector over the medium term. Ratings are constrained by the current weak macroeconomic environment globally and locally.
An expansion project was initiated in the garments division during FY21, involving the installation of 60 knitting machines. To facilitate the same, a building was being constructed for a new unit, but it has been put on hold due to business slowdown and prevailing macroeconomic challenges. The incomplete building is currently used as a warehouse. Moreover, 35 out of 60 machines were already imported and 18 are currently installed in the existing unit, with remaining 17 to be installed in the current year. Management plans to resume the construction of new unit in the near future.
Almost entire revenue emanates from exports, with only wastages and left over cloths being sold locally. Product-wise, home textile made-ups drive the majority of revenues accounting for more than one-half of total exports, while fabrics and garments constitute the rest. Geographic-wise, management primarily targets the European markets, with a specific focus on France, Spain, UK, Romania, Poland, Ukraine and Greece. Other regions include Asia, Africa, Middle East and US. Nearly one-third of client base comprises direct customers, while the rest includes retailers and wholesalers. Thus, resulting in high revenue granularity and manageable concentration risk as reflected from top ten clients representing one-fourth of total sales. Ratings remain dependent upon managing top line and leverage with timely completion of installation and operation of outstanding knitting machines.
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
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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