Press Release

VIS Maintains the Entity Ratings of Naveena Exports Limited

Karachi, February 23, 2021: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Naveena Exports Limited (NEL) at ‘A/A-1’ (Single A/ A-One). Outlook on the assigned ratings has been revised to ‘Stable’ from ‘Rating Watch-Developing’ status. Previous rating action was announced on April 22, 2020. Long term rating of ‘A’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ signifies high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor.

The revision in rating outlook, given the Covid-19 situation, captures the performance of NEL in FY20 and in the ongoing fiscal year. Topline has largely remained stable given higher average selling prices and growth in yarn sales while margins continue to witness a growth trend and compare favorably among peers. Rating also incorporates the NEL’s established market position as one of the leading exporters of yarn and denim fabric and strong business relationships with leading international brands. Healthy cash flow generation, sound debt servicing ability and the deferment of principal repayment for a period of one year (under covid-19 relief package) support overall liquidity profile. Moreover, the management has planned to enhance its spinning capacity by ~55% (New spindles to be installed: 21,600); negotiations for purchase of land are underway. While leverage indicators are expected to increase given the planned debt draw down for expansion of spinning unit, the management plans to maintain them at manageable levels over the rating horizon.

Business risk profile of the company is supported by positive growing demand for denim fabric and NEL’s favorable order-booking situation in the on-going year. Overall assessment of financial profile draws comfort from four-fifth of total borrowings being mobilized on concessionary rates and strong cash flow generation; liquid assets are reported to be sufficient to cover short-term borrowings. Gross margins have consistently grown on a timeline basis which is directly attributable to efficient procurement of cotton, higher quantum of value added products and recent cost reduction initiatives which included replacement of looms. Going forward, margins are expected to sustain while growth in profitability will be a function of increase in production volumes.

Ratings also take note of the planned restructuring strategy of sponsors where NEL’s entire shareholding along with its long-term investments will be transferred to a group holding company (Naveena Group). The holding company will consolidate Naveena Exports, Naveena Steel Mills, Naveena Developers and Naveena Builders, Naveena Capital and Lakeside Energy. The management expects the sounds financial profile of NEL to be preserved post restructuring.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext. 306) at 021-35311861-70 or email at info@vis.com.pk .

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Industrial Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .