Press Release
VIS Reaffirms Entity Ratings of Gadoon Textile Mills Limited
Karachi, November 02, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Gadoon Textile Mills Limited (GTML) at ‘A+/A-1’ (Single A Plus/A-One). Long-term entity rating of ‘A+’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, liquidity factors are excellent and supported by good fundamental factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 30, 2021.
Assigned ratings factor in GTML’s extensive experience in the spinning industry, large-scale operations with consistent focus on efficiency enhancements and strong investment portfolio in financially strong group companies. Further support is drawn from the strong sponsor profile. Business risk profile is considered moderate due to competitiveness in the local spinning sector, and the exposure to changes in the economic environment. With slowdown in the overall global economy, the business risk of the sector is likely to increase. However, GTML risk profile is supported by financial strength of the sponsor and group, provision of dividend income from investments, sizeable local sales and diversification plans.
Assessment of financial risk profile incorporates improving profitability, liquidity and capitalization indicators. Healthy topline growth in FY22 was attributable largely to a sharp rise in yarn prices and was further bolstered by increase in the sales and customer base of the value-added segment.. Profitability profile also witnessed improvement in line with higher margins and support from share of profit from associates. VIS expects gradual correction in margins in the ongoing year, hence maintaining profitability indicators in line with the benchmarks for the assigned ratings is considered important. On the back of higher profit generation, cash flow coverages against outstanding obligations exhibited noticeable improvement in FY22. Trade debts and inventory provided sufficient coverage against short-term borrowings, while current ratio also stood at a comfortable level. Despite increase in debt over the last year to finance BMR and working capital needs, growth in equity base through profit retention has decreased leverage levels. Going forward, drawdown of long-term debt to finance the expansion of the value-added segment and BMR is expected to increase gearing levels; however, maintaining the same at projected levels will be important.
For further information on this rating announcement, please contact Ms. Asfia Aziz (Ext: 213) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk.
Sara Ahmed
Director
Applicable Rating Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf