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VIS Reaffirms Entity Ratings of Mustaqim Dyeing and Printing Industries (Private) Limited

Karachi, March 01, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Mustaqim Dyeing and Printing Industries (Pvt.) Ltd (MDPIPL) to ‘A-/A-2’ (Single A Minus/Single A-Two). Long-term entity rating of ‘A-’ reflects good credit quality, and adequate protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ indicates good certainty of timely payment, with sound liquidity factors. Access to capital market is good and risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on February 25, 2022.

Ratings affirmation factors in sponsor group strength (Gani and Tayub), vertically integrated operations, ongoing initiatives to enhance capacity and efficiency, strong revenue growth with improved margins, sound debt coverage metrics and liquidity profile, and timeline strengthening in capital buffers. However, leverage indicators have trended upwards in line with increase in debt levels and working capital cycle is elevated due to sizeable inventory holdings days. Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, rising interest rates, inflationary pressures, and higher electricity costs pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally.

Under capacity and efficiency enhancement initiatives, spinning segment has transitioned to more efficient auto core spindles, replacing the previous machinery that relied on ring spindles. Home textile division has maintained its capacity and improved quality and efficiency by replacing and upgrading machinery. In the socks division, a new facility in Nooriabad has been established, adding 300 new knitting machines. The building has the potential to house an additional 300 machines, but further investment will depend on market demand. The project cost, including building construction and plant and machinery is financed through an equal mix of debt and equity. Lastly, the company has included a new segment in its business mix, which is Dyeing of knitted fabric.

In FY22, net sales marked its highest revenue growth in the past eight fiscal years. Home textiles are the main driver of export sales, while yarn dominates the local sales market. Proportionate share of exports to local sales has noted an increasing trend over the last two years, which currently stands at 90:10. Roughly, ~85% of exports are directed towards Europe while the remaining portion is shared by US. Client concentration risk remains high, as top ten clients account for ~72% of export sales, with IKEA, a Sweden-based retailer, being the largest procurer and a client for over 17 years. Profitability margins (both on gross and net basis) reflect significant improvement during 1Q’FY23, which is mainly attributed to rupee devaluation during the period and carry-over stock. Equity base has nearly doubled over the period of last four fiscal years driven by adequate profitability, all-out retention, and interest-free loans from sponsors.

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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