Press Release
VIS Maintains Entity Ratings of Umar Spinning Mills (Pvt.) Ltd
Karachi, May 27, 2021: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of Umar Spinning Mills (Pvt.) Ltd (USMPL) at ‘BBB+/A-2’ (Triple B+/A-2). Long Term Rating of BBB+ reflects adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short Term Rating of A-2 indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Rating Watch-Negative’ to ‘Stable’. Previous rating action was announced on April 29, 2020.
The ratings take into account recovery in industry wide exports post ease in COVID-19 lockdown measures supporting overall business risk profile of the industry. Even though impact of COVID-19’s third wave remains elevated, we expect the order book for the industry to remain adequate in the ongoing year, easing our business risk concerns.
Revision in rating outlook reflects improvement in financial risk profile of the company as evident in 9MFY21, along with projected expansion plans. Ratings remain dependent on timely materialization of the expansion within projected costs along with meeting projected financial indicators.
Assessment of financial risk profile depicts improving profitability profile and adequate cash flow coverages during 9MFY21. Topline of the company reported a meager increase of 1% during FY20 led by subdued economic environment amidst COVID-19. However sales revenue witnessed an uptick in 9MFY21 led by higher selling prices, rupee devaluation and higher demand for organic yarn. Overall profitability profile of the company was impacted by higher cotton prices led by currency devaluation on imported cotton, higher utilities & freight cost and exchange losses on FE loans during FY20. During 9MFY21, gross margins of the company improved on account of higher sales and inventory gains. Going forward, management envisages gross margins to improve on account of competitive advantage of higher quality yarn, greater sales revenue backed by expansion along with energy savings expected to realize from the solar plant. Liquidity indicators weakened in FY20 due to subdued profitability; however the same improved in 9MFY21 and are expected to remain in line with projected increase in overall profitability, going forward. Capitalization indicators increased during FY20 to finance working capital needs, import of plant & machinery and SBP facility for payment of salaries and wages. Going forward, leverage indicators are expected to further increase on account of expansion plans but are projected to remain within manageable level over the ratings horizon.
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: Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf