Press Release

VIS Maintains Entity Rating of The Crescent Textile Mills Limited

Karachi, March 27, 2024: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of The Crescent Textile Mills Limited (‘Crestex’ or ‘the Company’) at ‘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 has been revised to ‘Negative’ from ‘Stable.’ Previous Rating action was announced on February 16, 2023.

Established in 1950, The Crescent Textile Mills Limited (‘Crestex’ or ‘the Company’) is a publicly listed entity specializing in yarn production, greige fabrics, processed fabric, home textiles, and institutional garments. Operating across three plants, two located in Faisalabad, Punjab, and one in Haripur, KPK, the Company is recognized for its textile expertise and export capabilities.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by domestic and international economic factors, notably its reliance on exports. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

Assigned ratings also consider the Company’s business updates wherein Crestex demonstrated a decrease in topline, owing to a volumetric reduction of 17% YoY in sales. The gross margin has decreased given the rise in cost of sales amid higher raw material prices, hike in fuel and energy cost, and other inflationary pressures. Higher finance charges due to an elevated monetary policy rate has restrained the bottom-line. Consequently, the net margin also contracted during the period under review.

Assigned ratings take into account the Company’s financial risk profile. Long term debt of the Company rose during the review period amid financing a new weaving unit. Additionally, the short-term borrowings also increased to meet higher working capital needs, influenced by rising raw material costs. Resultantly, both leverage and gearing ratios deteriorated slightly during the review period. Revision in outlook is based on the entity’s cashflow coverage indicators, which suggests room for improvement, with debt-service-coverage-ratio (DSCR) falling significantly. The liquidity profile of the Company, as reflected by its current ratio, continues to hover around marginal level. Going forward, ratings remain sensitive to improvement of profitability, capitalization and cash flow coverage indicators while further enhancement in liquidity profile will also remain a key consideration.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.




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

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