Press Release
VIS Upgrades Entity Ratings of Premium Textile Mills Limited (PRET)
Karachi, September 24, 2019: VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Premium Textile Mills Limited (PRET) from ‘BBB+/A-2’ (Triple B Plus/A-Two) to ‘A-/A-2’ (A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. The 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-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. The previous rating action was announced on July 12, 2018.
The rating action incorporates strengthening in financial profile of the company as reflected by growing topline and improving margins along with sound liquidity profile and satisfactory debt servicing ability. However, ratings are constrained by elevated leverage indicators and business risk profile of the spinning industry as reflected by high cyclicality & competitive intensity and volatility in cotton prices. Ratings remain dependent on reducing leverage indicators and efficient working capital management while maintaining margins and satisfactory debt servicing ability.
PRET net sales have witnessed a growth of 32.8% during the outgoing year. The increase in topline was on account of higher average selling price and growth in quantity sold. Client concentration has increased on a timeline basis as part of a deliberate strategy to focus on higher value added clients. Gross margins increased during FY19 and compare favorably to peers. However, net margins witnessed a slight decline on the back of higher overheads and finance cost. In absolute terms, profit before tax recorded a strong growth of 47% during FY19 despite 25% increase in depreciation expense during the period.
Liquidity profile remains satisfactory due to healthy cash flow generation and strong debt servicing ability. Improved working capital management through reduction in short-term borrowings is considered important from a ratings perspective. Leverage indicators have increased on a timeline basis and are on the higher side due to sizeable capital expenditure undertaken and elevated working capital borrowings. Lower projected capex from FY21 and improved working capital management is expected to result in gradual reduction in leverage indicators over the rating horizon.
For further information on this rating announcement, please contact the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.
Jamal Abbas Zaidi
Advisor
Applicable Rating Criteria: Industrial Corporates (May 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf