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Karachi, July 07, 2023 (PPI-OT): VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of Soorty Enterprises (Private) Limited (SEL) at ‘AA-/A-1’ (Double A Minus/A-One). 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 remains ‘Stable’. Previous rating action was announced on May 30, 2022.
Ratings continue to reflect SEL’s dominant market position as a leading exporter of denim fabric and garments, ranking sixth among top ten exporters in the country in FY22. Ratings also recognize its long-standing operational experience spanning over three decades, vertically-integrated structure, renowned global brands and retailers as key customers, global marketing reach, and commitment to eco-friendly and sustainable manufacturing practices.
Ratings reaffirmation reflects robust topline growth in FY22; however, recent demand slowdown impacted volumetric sales growth this fiscal year. Healthy profitability margins and all-out profit retention have led to build up of strong capitalization buffers over time. Debt coverage metrics are strong and aligned with peer median while overall capital structure remains conservative, as reflected by low leverage levels. Additionally, the company holds sizeable liquidity, previously invested in listed shares and mutual funds. However, management recently divested a significant chunk of mutual fund investments and shifted them to bank accounts. 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. The same is reflected in ~14% YoY decline in 10M textile export proceeds (in value terms). Ratings are constrained by the current weak macroeconomic environment globally and locally.
While predominantly export-oriented, with over 92% share in revenues on a timeline, the company has seen a notable increase in domestic sales this fiscal year, particularly in the yarn segment, driven by increased demand due to regional yarn shortages. Currently, denim garment exports generate more than two-third of total sales, while the remaining portion comes from denim fabric, yarn, and sewing thread sales, including both local and export segments. With global slowdown in fabric demand, management anticipates further increase in garment sales contribution in the future. Geographic sales mix is well-diversified, with Europe representing almost half of total exports, while Bangladesh, US, and Canada contribute the rest. With successful onboarding of key clients such as Levis, JC Penny, and Contour in US, management expects its market share to grow in the coming years. Client concentration remains high, with top ten clients consistently generating more than three-fifth of entire revenues.
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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