Press Release

VIS Maintains Entity Ratings of Indus Dyeing & Manufacturing Co Limited
 

Karachi, June 10, 2021: VIS Credit Rating Company Limited (VIS) has maintained 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 factors. Outlook on the rating has been revised from ‘Rating Watch- Developing’ to ‘Stable’. Previous rating action was announced on April 29, 2020.

The revision in rating outlook captures overall performance of the company during the period under review. Profitability in the ongoing year is well supported by inventory gains yielding improved margins while strong capitalization levels and healthy cash flows continue to be aligned with the assigned ratings. Deferment of principal repayment for a period of one year (under Covid-19 related debt relief scheme by SBP) provided additional liquidity buffer. Furthermore, ratings continue to factor in IDMC’s extensive experience of more than six decades in spinning sector and its strong investment portfolio (which includes three subsidiaries and one associate undertaking). The company is well placed in peer group in terms of overall sales revenue and leverage metrics. Ratings also take into account the high business risk profile due to cyclicality and competitiveness in local spinning sector; nevertheless, favorable government policies and healthy demand (on both domestic and export fronts) provides support.

The company is currently operating at total installed capacity of 184K spindles while further addition of 4.5K new spindles is planned over the rating horizon. Historically, the company has been operating at high utilization levels, but remained under pressure in FY20 due to pandemic induced slow-down in demand. Subsequent to year-end, volumes have recovered upon diversion of export orders to Pakistan and improved overall economic indicators. Exports continue to dominate IDMC’s sales mix with its contribution standing at around two-third of topline. Geographic concentration in exports is on the higher side as major bulk of sales is directed to Chinese trading houses. However, client wise concentration is considered to be manageable with diversified local and international client base.

Assessment of financial profile also draws comfort from more than four-fifth borrowings being mobilized on concessionary rates, conservative capital structure and improved profitability. Gross margins swiftly bounced back in the ongoing year from the pandemic slump mainly on account of improved yarn prices and efficient procurement of cotton. Overall profitability profile is also supported by other income which mainly included dividends from IHL and discounting of GIDC provision. IDMC mobilized long-term financing of Rs. 1.8b to fund equity investment in subsidiary (Indus Wind Energy Limited) which the management has planned to fully repay in the ongoing year. Resultantly, gearing and leverage indicators have trended upwards yet remains on the lower side vis-à-vis peers. Maintenance of performance metrics aligned with the assigned ratings are important in the ratings horizon.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk .



Javed A. Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf

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