Press Release
VIS Maintains Entity Ratings of Gohar Textile Mills (Pvt.) Limited
Karachi, May 26, 2021: VIS Credit Rating Company Limited (VIS), while maintaining the entity ratings of Gohar Textile Mills (Pvt.) Limited (GTML) at ‘A/A-1’ (Single A /A- One), has placed the same on ‘Stable’ outlook from ‘Rating Watch-Negative’ status. The medium to long-term rating of ‘A’ denotes good credit quality with adequate protection factors. Moreover, the risk factors may vary with possible changes in economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. The previous rating action was announced on April 17, 2020.
Revision in the outlook draws comfort from the recovery in the textile industry post COVID-19 lockdown on the back of export orders diverted from the closure in other regions. The Government has also been supportive of the textile industry with various measures, including financing at concessionary rates.
The maintenance of ratings assigned to GTML during FY20 takes into account the company’s continued growth in the topline on the back of volumetric increase in sales. However, competitive pressures in the industry continued to push prices down which in turn impacted gross margins of the company. Operating and net margins also remained constrained on the back of higher operating expenses and financial charges. Going forward, the same are expected to improve on account of cost control initiatives undertaken by the management and projected growth, although recent rupee appreciation will continue to weigh in to some extent. Ratings remain dependent upon sustainability of sales and improvement in profitability indicators, and will be monitored by VIS over the rating horizon.
Although dependence on long-term borrowings has historically remained low, debt utilization increased during FY20 as the company availed the SBP’s salary refinance program under COVID relief. As a result, capitalization indicators remained elevated; albeit remaining within manageable levels. Lower profitability and higher debt utilization resulted in declining cash flow coverage indicators, but remained within adequate levels. Liquidity indicators have remained sound and short term borrowings are adequately supported by trade debts and inventory. Inventory levels have increased in HY’21 due to buying of safety stock in view of rising prices. Going forward, improvement in liquidity indicators on account of streamlining of inventory levels to historical basis will weigh upon ratings going forward
For further information on this rating announcement, please contact Ms. Sara Ahmed (042-35723411-13, Ext. 207) and/or the undersigned at 021-35311861-66 (Ext. 201) or email at info@vis.com.pk
Javed Callea
Advisor
Applicable rating criterion: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx