Press Release

VIS Assigns Initial Entity Ratings to Quality Textile Mills Limited

Karachi, December 30, 2021: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B /A Two) to Quality Textile Mills Limited (‘QTML’ or ‘the Company’). The long term rating of ‘BBB’ reflects adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur 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 is ‘Stable’.

Incorporated in 1988, as a public limited company under the repealed Companies Ordinance, 1984 (Repealed with the enactment of the Companies Act, 2017 on May 30, 2017). The Company was delisted from Karachi Stock Exchange (Now Pakistan Stock Exchange) on November 24, 2014. The principal activity of the Company is manufacture and sale of yarn. QTML is an ISO certified cotton spinner, and its plant has a total of 25,104 spindles.

The assigned ratings incorporate QTML’s size, margins and business risk of the spinning segment. Given the addition of waste processing capacity, recent change in product mix (from Cotton to Cotton/Polyester mix) and resultant improvement in margins, topline is likely to grow in line with management estimates and margins are assumed to be maintained during the rating horizon. QTML operates in the cotton yarn spinning business, wherein the performance is sensitive to cyclicality in cotton prices, which further determined by crop yield. Historically, margins and financial performance of players have depicted seasonality. Moreover, competitive intensity is high due to commoditized nature of the product.

Historically, the management has focused on organic growth and leveraging has been maintained at manageable level. Accordingly financial risk profile of the entity has remained moderately low. Furthermore, apart from the one-off FY20 topline contraction, cash flow coverage indicators have remained adequate. The increase in cash sales in recent period and resultant contraction of cash conversion cycle is viewed positively from ratings purview.

As per management, leverage indicators will be maintained going forward. The assigned ratings are dependent on maintenance of business and financial risk indicators in line with peers.

For further information on this rating announcement, please contact the undersigned (Ext. 201) or Mr. Arsal Ayub, CFA (Ext: 215) or at 021-35311861-70 or email at info@vis.com.pk.





Faryal Ahmad Faheem
Deputy CEO

VIS Entity Rating Criteria: Corporates - August 2020
https://www.vis.com.pk/kc-meth.aspx

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