VIS Upgrades Entity Ratings of Naveena Exports Limited

Karachi, January 31, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has upgraded the long term entity rating of Naveena Exports Limited (NEL) from ‘A-’ (Single A Minus) to ‘A’ (Single A). Short term rating has been maintained at ‘A-1’ (A-One). Outlook on the assigned ratings is ‘Stable’. Long term rating of ‘A’ signifies good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ signifies high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. The previous rating action was announced on April 08, 2019.

NEL is primarily engaged in manufacturing of yarn and denim fabric. The Company commenced operations in 1989 and has emerged as a leading exporter of denim fabric from Pakistan. Naveena Group has diversified its operations across denim, spinning, property development, steel and power sectors.

Rating upgrade incorporates improvement in financial profile as noticeable from enhanced cash flow and debt servicing coverages while low leveraged capital structure has been maintained despite significant investments in subsidiary companies. Ratings also incorporate favorable business risk profile stemming from stable and growing demand for denim products. Ratings remain dependent on maintaining conservative financial profile and healthy cash flow coverages in line with projections. Impact of planned restructuring initiative on the financial profile of NEL will also be a key rating driver.

Business risk profile is supported by stable and growing demand for denim products. VIS expects demand for denim products to remain stable over the medium term. Given the favourable policies and incentives of the government on enhancing exports, there is significant opportunity for Denim players to enhance exports.

In this regard, NEL is well positioned to tap this opportunity given the successful completion of BMR at its manufacturing facilities yielding higher efficiencies and significant focus on product innovation. Assessment of financial risk profile incorporates healthy sales growth, improving gross margins which compare favourably to peers, strong liquidity profile and low leveraged capital structure. Going forward, some volumetric growth along with higher average prices are expected to be key profitability drivers.

Ratings take into account planned restructuring initiative of sponsors whereby non-textile investments (except for wind power exposure) on balance sheet are planned to be divested to Naveena Group (Private) Limited (Naveena Group) over the rating horizon. The group restructuring is aimed to enhance corporate governance and improved performance monitoring of investments.

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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