Press Release
VIS Reaffirms Entity Ratings of Ahmed Oriental Textile Mills Limited (AOTML)
Karachi, January 17, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Ahmed Oriental Textile Mills Limited (AOTML) at ‘BBB+/A-2’ (Triple B Plus/A-Two). 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’. The previous rating action was announced on October 25, 2018.
The assigned ratings incorporate improvement in the financial profile of the company as reflected by growing topline and improvement in the leverage indicators of the company. However, ratings are constrained by limited size of the company and business risk profile of the spinning industry as reflected by high cyclicality & competitive intensity and volatility in cotton prices. Corporate governance framework also depicts room for improvement.
Net sales of the company have increased at a Compound Annual Growth Rate (CAGR) of 18.2% in the period from end-FY17 to end-FY19. Growth in FY19 was a function of increase in average prices as volumes were reported slightly lower vis-à-vis the preceding year. Geographic concentration is witnessed in export sales. Client wise concentration in sales has also increased due to management’s preference to work with existing clients with timely repayment history. Going forward, the sales of the company are expected to remain at a similar level as the company is in consolidation phase.
Gross margins remain a function of the input prices. Increase in raw material costs contributed to lower gross margins (FY19: 10.8%; FY18: 11.2%) in FY19. Although growth in topline has led to growth in bottom-line of the company, both net margins and profit after tax were reported lower due to greater increase in operating expenses and finance cost. Going forward, profitability profile will remain dependent on movement in cotton prices and cost of inventory carried by the Company.
The equity base of AOTML has improved on account of profit retention. Total debt was also reported lower due to lower utilization of long term borrowings. In absence of any sizeable capex plans, the management does not envisage any increase in long term borrowing going forward. Hence, leverage indicators are expected to remain a function of utilization of short term borrowings. Liquidity profile remains adequate in view of satisfactory cash flows in relation to outstanding debt obligations.
For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or the undersigned (Ext: 201) at (021) 35311861-66 or email at info@vis.com.pk.
Jamal Abbas Zaidi
Advisor
Applicable Rating Criteria: Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf