Press Release
VIS assigns Initial Ratings to Shafi Texcel Limited (STL)
Karachi, December 19, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/ Single A-Two) to Shafi Texcel Limited (STL). Outlook on the assigned ratings is ‘Stable’. The medium to long-term rating of ‘BBB+’ denotes adequate credit quality with sufficient and reasonable protection factors. Risk factors are considered variable with if changes occur 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.
Incorporated in 1992 as an unlisted public company, Shafi Texcel Limited (STL) operates as an integrated textile mill and is engaged in the manufacturing and sale of yarn-dyed fabric, greige fabric, dyed fabric, and garments along with provision of yarn dyeing services. Ratings factor in association with the Shafi Group of Companies which has diversified presence in the textile, food leather and footwear sectors. Ratings incorporate sound internal audit and IT infrastructure; however, room for improvement exists in board composition as owners are the directors of the company.
Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, rising interest rates, inflationary pressures, and higher electricity costs pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally. Hence, meeting projected growth targets and maintaining financial risk profile will be important for ratings.
Financial risk assessment incorporates growing revenue base, stable gross margins, sufficient cash flow coverages and sound capitalization profile. Double-digit revenue growth on a timeline basis was attributable to volumetric growth led by consistent BMR and capacity enhancements along with higher selling prices. Going forward, management plans to focus towards value-added products particularly in yarn-dyed fabric and garments. Although gross margins have depicted stability, projected improvement in profitability profile is contingent on garnering higher export orders in USA along with higher expected margins from value-added products. Liquidity profile of the company is considered adequate with sufficient cash flow coverages against outstanding obligations, manageable cash conversion cycle, and no defaulting customers depicting sound financial health of major local customers. Albeit gearing and leverage levels increasing on a timeline basis, capitalization profile of the company is considered sound with profit retention providing support to equity growth. Meeting projected growth targets amidst depressed global and local demand scenario along with maintaining liquidity and capitalization metrics in line with parameters for assigned ratings will be important.
For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext: 201) at (021) 35311861-66 or email at info@vis.com.pk
Javed Callea
Advisor
Applicable Rating Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf