Press Release
VIS Reaffirms Entity Ratings of Nadeem Textile Mills Limited
Karachi, January 30, 2024: VIS Credit Rating Company Limited ('VIS') reaffirms entity ratings of Nadeem Textile Mills Limited (‘NATM’ or ‘the Company’) to 'A-/A-2' ('Single A minus/A-Two'). Medium to long term rating of 'A-' indicates good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short term rating of 'A-2' indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings remains 'Stable'. Previous Rating action was announced on December 21, 2022.
Nadeem Textile Mills Limited was incorporated in Pakistan on July 15, 1984, as a public limited company and its shares are listed on Pakistan Stock Exchange (PSX). Principal activity of the Company is manufacture and sale of yarn. NATM has a registered office in the Lakson Square Building No.3 on Sarward Shaheed Road, Karachi. It has two units of manufacturing facilities, one in S.I.T.E, Nooriabad, Karachi and the other in S.I.T.E, Kotri, district Jamshoro.
Assigned ratings for NATM incorporate a constrained business risk profile attributed to the spinning sector’s susceptibility to economic cyclicality and heightened competition. The spinning sector in Pakistan, comprising of over 400 mills, faced challenges from various economic and environmental factors, including crop damage by flooding and inflation in FY23. Prospects of cotton production in ongoing season are favorable as compared to last cotton season but still below expectations. However, the sector's performance is closely tied to broader economic conditions, rendering it vulnerable to demand fluctuations.
Assigned ratings also consider the Company's financial risk profile. The profitability profile takes into account the topline and margin compression experienced in FY23 due to dampened volumetric performance, increased raw material costs, and high inflationary pressure. The capitalization profile notes deterioration resulting from equity erosion, higher short-term debt utilization, and financing for Business Model Redesign (BMR) and other capital expenditure (CAPEX) projects. Simultaneously, the Company witnessed a notable decline in its coverage profile in FY23, attributed to operational challenges. However, there was a recovery noted in 1QFY24 to satisfactory levels. Nevertheless, the Company's liquidity profile continues to provide adequate support to assigned ratings.
Ratings are underpinned by improvement in financial metrics noted in 1QFY24. Going forward ratings will remain sensitive to the enhancement in the profitability profile as well as maintenance of the capitalization, liquidity and coverage metrics commensurate with assigned ratings.
For further information on this ratings announcement, please contact Saeb Muhammad Jafri at 021-35311861-64 (Ext. 202) and/or the undersigned at 021-35311861-64 (Ext. 201) or email at info@vis.com.pk.
Javed Callea
Advisor
Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf
Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .