Press Release

VIS Reaffirms Entity Ratings of Kamal Limited

Karachi, May 3, 2024: VIS Credit Rating Company Limited has reaffirmed entity ratings of Kamal Limited (KL) to 'A/A-1' (Single A/A-One). Medium to long term rating of 'A' reflects good credit quality; Protection factors are adequate. 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 assigned ratings remains Stable. Previous rating action was announced on April 7, 2023.

KL, a family-owned enterprise, is an export-oriented and value-added textile unit with a 15-year operational history. The Company has vertically integrated operations covering spinning, weaving, dyeing, printing, finishing, knitting and stitching segments. Product range focuses on branded and non-branded fabrics, home textiles, garments, variety of yarns and other textile goods.

The assigned ratings reflect the medium business risk profile inherent in Pakistan's textile sector, characterized by exposure to economic cyclicality and strong competition. Performance within this sector is heavily influenced by broader economic conditions, making it susceptible to demand fluctuations driven by both domestic and international economic factors, particularly its reliance on exports. Additionally, supply-side risks such as local cotton crop production and dependence on imported raw materials expose the sector to considerable exchange rate risk.

Assigned ratings consider the Company’s business updates wherein KL’s revenue in FY23 declined due to lower volumetric sales. However, gross margins improved on the back of better selling prices amid rupee devaluation. Due to increased pressure from financial charges, net margins decreased in FY23. In 1H’FY24, the Company experienced a substantial increase in net sales vis-à-vis SPLY, driven by export sales in home textiles and fabric, resulting in improved gross margins. Despite rising operating expenses and finance cost, net margins registered improvement compared to the same period last year.

The assigned ratings also take into account the Company’s financial risk profile which exhibited satisfactory cashflow and liquidity indicators wherein annualized Debt Service Coverage Ratio (DSCR) remained adequate. Current ratio largely remained intact during the review period. Despite augmentation in core equity, gearing and leverage remained elevated reflecting an uptick in borrowings, which outpaced equity growth. In the medium to long term, the management does not intend to mobilize any long-term loans. Going forward, improvement in leverage indicators is important from ratings perspective. Ratings will remain dependent on KL’s ability to achieve forecasted numbers.

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

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 .