Press Release
VIS Assigns Positive Outlook to Nishat Chunian Limited
Karachi, June 2, 2022: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of ‘A/A-2’ (Single A /A-Two) of Nishat Chunian Limited (NCL). The medium to long-term rating of ‘A’ denotes good credit quality, with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Previous rating action was announced on May 16, 2021.
The ratings assigned to NCL take into account the company’s association with Nishat Chunian Group; one of the leading groups in Pakistan with sizable financial strength. The ratings incorporate diversification of revenue stream into spinning, weaving and made-up segments. Given significant reliance of the company on spinning operations, ratings factor in high cyclicality and competitive intensity for spinning industry along with volatility in cotton prices. Meanwhile, overall business risk profile of the textile industry is supported by stable demand and favorable regulatory regime.
The ratings derive strength from sound growth in revenues on account of increase in volumetric sales and average product prices during FY21 and the ongoing year. Gross profit margins have improved considerably mainly due to higher contribution margin of spinning segment in line with favorable yarn prices and economies of scale leading to fixed overheads absorption. The company generated healthy bottomline leading to notable improvement in liquidity profile as reflected by adequate cash flows in relation to outstanding obligations. Despite high debt levels, gearing improved on a timeline basis on the back of equity expansion. Outlook on the assigned rating has therefore been revised from ‘Stable’ to Positive’.
The company is in process of conducting major BMR primarily to enhance operational efficiencies in the spinning segment along with some capacity enhancement and upgradation in weaving, processing and madeups segments. The above-mentioned projects are projected to be funded through a combination of debt and equity. The leverage indictors are projected to decrease in FY23 onwards. The ratings will remain dependent on maintaining profitability profile while improving liquidity and leverage indicators, going forward.
For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at info@vis.com.pk
Faryal Ahmad Faheem
Deputy CEO
VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf