Press Release

VIS Reaffirms Entity Ratings of Union Fabrics (Private) Limited

Karachi, December 07, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘A-/A2’ (Single A Minus/A-Two) assigned to Union Fabrics (Private) Limited (UFPL). Long Term Rating of ‘A-’ reflects good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals, and good access to capital markets. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on January 6, 2021.

UFPL currently operates in the home textiles, processing and value added business lines in addition to weaving. Capacity utilization levels of sizing, weaving, stitching and processing segments continued to report on the higher side during the outgoing fiscal year. Overall corporate governance framework depicts room for improvement given status of a private limited company.

Assigned ratings incorporate moderate business risk profile of the company. Textile exports have largely recovered from the Covid-19 pandemic shocks and are still growing both in terms of their quantity and dollar value. The textile shipments have surged by 3.8% to $4.8 billion in 1QFY22 from $4.6bn in the corresponding period last year. The rise in the textile and clothing group has been slightly faster than the 0.6% growth in the overall export. The export recovery is most prominent in the knitwear, home textiles and denim segments. Favorable government policies for enhancing exports and improving country’s perception and law & order situation bode well for the textile sector. Conversely, increasing cost of doing business and reduction in rebate rates may impact margins for selected players.

Assessment of financial risk profile incorporates improvement in profitability profile, adequate liquidity profile and sound capitalization indicators. Robust growth in sales revenue was largely a function of higher volumetric sales. Gross margins were reported higher in FY21 on account of currency devaluation. Given sufficient orders in hand, along with expected commencement of the BMR expansion in the processing unit, sales revenue is projected to depict growth in FY22. Going forward, management envisages profitability to improve in the backdrop of higher projected revenue and margins from the value added segment. Liquidity profile of the company is considered adequate in relation to outstanding obligations. Going forward, with improving profitability and limited additional long-term debt drawdown, liquidity profile is expected to strengthen. Equity base of the company witnessed an increase owing to profit retention. Leverage indicators increased in the outgoing year due to debt drawdown to finance BMR capex and working capital requirement. Ratings are dependent upon projected increase in profitability, consequent retention of the same in equity base, and limited debt drawn, capitalization indicators are expected to improve going forward.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext: 306) at (021) 35311861-66 or email at info@vis.com.pk.




Faryal Ahmad Faheem
Deputy CEO

Applicable Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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