Press Release

VIS Reaffirms Entity Ratings of Indus Dyeing & Manufacturing Co Limited

Karachi, September 28, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Indus Dyeing & Manufacturing Co Limited (IDMC) at ‘A+/A-1’ (Single A Plus/A-One). Long term entity rating of ‘A+’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the ratings is ‘Stable’. Previous rating action was announced on August 04, 2022.

Ratings takes into consideration the deterioration in the demand and supply dynamics of the textile sector owing to shortage of cotton crops, severe currency devaluation, heightened inflation and soaring policy rates over the rating review period. These factors led to slowdown in topline growth, contraction in margins, and weakening in liquidity profile; however comfort is drawn from sound capitalization profile of the Company exhibited by a robust equity base. Post double-digit growth in FY21 and FY22, sales growth has been subdued in 9MFY23 primarily on account of the economic slowdown in the local as well as export markets. Export sales continue to account for a major proportion of revenue, with China being the major export destination. Going forward, management expects revenue base to gradually increase given a resurgence in demand coupled with expected ease in LC constraints.

Assessment of financial risk profile took note of shrinkage in gross margins in the outgoing year due to elevated input costs and inventory losses. Net margins also declined during 9MFY23 due to increase in the financial charges driven by a significant hike in the policy rate along with higher borrowing levels to finance expansion and working capital needs. Going forward, amidst challenging macroeconomic, improving margins will be important for the ratings. With subdued profitability, the Funds from Operations (FFO) also saw a decrease during 9MFY23, thereby affecting the Company's debt service capacity. Nonetheless, the liquidity profile remains at comfortable levels. Capitalization profile draws support from its sizeable equity base; nevertheless, leverage and gearing indicators have grown as a result of a surge in both short-term and long-term debt levels. Going forward, given no sizeable expansion plans, management expects the leverage indicators to remain within manageable levels. Given the challenging market dynamics and pressure on margins, maintaining financial ratios at levels that are commensurate with the benchmarks for the assigned ratings will be important, going forward.

For further information on this rating announcement, please contact Ms. Asfia Amanullah (Ext: 212) or the undersigned (Ext. 207) at 021-35311861-64 or email at info@vis.com.pk.


Sara Ahmed
Director

VIS Entity Rating Criteria: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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