Press Release
JCR-VIS Reaffirms Entity Ratings to Soorty Enterprises (Private) Limited
Karachi, December 31, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Soorty Enterprises (Private) Limited (SEL). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on March 22, 2018.
Assigned ratings take into account SEL’s position as one of the leading denim fabric & garment manufacturers in the country with vertically integrated operations, and international presence. Ratings also incorporate the company’s satisfactory operating track record, moderate business risk and strong financial risk profile. Reaffirmation of ratings incorporates SEL remaining compliant with all communicated financial benchmarks.
Over the last few years, SEL has continued to enhance its capacity in spinning, denim fabric and garment segment with increased focus on sustainability initiatives. During FY18, capacity was enhanced in the spinning and denim fabric segment. Moreover, further expansion in all three segments is ongoing and expected to be completed in FY19. Capacity utilization of all three segments-yarn, fabric and garments were reported on the higher side during FY18 and in the ongoing year.
Business risk profile is supported by stable and growing demand for denim products. However, local and international expansion by major players is expected to keep pricing power and hence margins under pressure. Despite diversification plans, the company’s operations are currently concentrated with exposure to the denim industry which might significantly impact business risk profile in case of change in demand patterns or any other industry specific factors. Therefore, keeping pace with rapid changes in fashion trends is considered important. JCR-VIS expects demand for denim products to remain stable over the medium term. Given the focus of the government on enhancing exports, there is significant opportunity for Denim players to grow. In this regard, SEL is well positioned to tap this opportunity given the ongoing and completed expansion in all three segments.
Assessment of financial risk profile incorporates robust profitability indicators, strong liquidity profile and conservative financial policy as reflected by a low leveraged capital structure. Funds flow from operations increased by 32% during FY18 and is expected to remain sufficient for funding all planned capex. Equity base of the company has grown at a healthy pace over the last six years due to profit retention. Debt carried on the balance sheet comprises short-term debt to fund working capital requirements. Going forward, ratings will remain dependent on compliance with communicated benchmarks.
For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Javed Callea (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.
Jamal Abbas Zaidi
Advisor
Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf