Press Release
VIS Reaffirms Entity Ratings of A.A. Spinning Mills Limited
Karachi, August 15, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of A.A. Spinning Mills Limited (AASML) at ‘A-/A-2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on July 02, 2021.
The rating incorporates AASML association with Ibrahim Group, a leading domestic business conglomerate with stakes in textile, power and financial sectors. AASML operates in the cotton yarn spinning business, wherein the performance is sensitive to cyclicality in cotton prices, which is further determined by crop yield. Historically, margins and financial performance of players have depicted seasonality. Moreover, competitive intensity is high due to commoditized nature of the product.
Given the increase in demand of yarn post pandemic, AASML’s revenue base and margin have depicted improvement during the period under review (FY21 & 9M’FY22). Domestic sales comprise bulk of the Company’s revenue base while client concentration has been increasing on a timeline. The client concentration risk is considered manageable given long-standing business relations with major clients
Rating incorporates historical track record of maintaining adequate leveraging and cash flow coverage. Financial risk profile of the entity has remained adequate. Furthermore, apart from the one-off FY20 one-off deterioration, cash flow coverage indicators have remained adequate. The Company has also planned capacity expansion by constructing another spinning unit of 50,000 spindles in FY24. Going forward, it is projected that the Company’s gearing ratio would rise albeit remain below benchmark for the assigned rating. The assigned rating remains dependent on maintenance of business and financial risk metrics.
For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA (Ext: 216) or the undersigned (Ext. 306) at 021-35311861-70 or email at info@vis.com.pk
Faryal Ahmad Faheem
Deputy CEO
Applicable rating criterion: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf