Press Release

VIS Reaffirms Entity Ratings of Sheikhupura Textile Mills Limited

Karachi, July 12, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sheikhupura Textile Mills Limited (STML) at ‘BBB/A-2’ (Triple B/A-Two). Long-term rating of ‘BBB’ signifies adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’. Previous rating was announced on June 30, 2022.

Sheikhupura Textile Mills Limited (STML) is engaged in the business of manufacturing, selling, buying and dealing in all types of yarn including different counts of blended yarn. The Company also sells Women Fashion Cloth under the brand name of ‘Cross Stitch’. STML has two manufacturing units with one comprising spinning operations and the other is the stitching unit located in District Kasur, Punjab. The ownership of the company is majorly shared among four members of the sponsoring family and are actively involved in business affairs.

Assigned ratings capture the extensive sponsor experience, elevated capacity utilization levels and revenue growth of 43% in FY22 contributed by higher prices. Margins remain in pressure due to currency devaluation, higher input & financial costs and greater penetration costs for the retail segment thereby affecting profitability and liquidity profile. In addition, high cyclicality and competitiveness in the spinning sector translate into high business risk profile. Going forward, management expects revenue base to increase due to gradual ease in LC constraints and ongoing capacity enhancement plans in the stitching segment to cater rising demand of the retail and export segment. Cash flow coverages against outstanding obligations albeit remaining sufficient, weakened in the review period due to higher quantum of debt drawn. As per the management, the liquidity profile will improve in line with enhancement of scale of retail operations, and planned efficiency enhancement initiatives. On the capitalization front, leverage indicators have increased due to higher quantum of short-term debt drawn and meagre growth in equity base during the review period. Given there are no sizable expansion plans in perspective with installations of small stitching machineries, the leverage indicators are projected to remain at similar levels during the rating horizon. Given challenging macroeconomic environment locally and globally, keeping earning margins and cash flow coverages in line with benchmarks for the assigned ratings will be critical.

For further information on this rating announcement, please contact Ms. Asfia Amanullah (Ext: 212) or the undersigned (Ext: 207) at (021) 35311861-66 or email at info@vis.com.pk.






Sara Ahmed
Director

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

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