Press Release
VIS Reaffirms Entity Ratings of Khalid Shafique Spinning Limited
Karachi, May 22, 2025: VIS Credit Rating Company Limited (VIS) reaffirms entity ratings of Khalid Shafique Spinning Limited (“KSSML” or “the Company”) at 'BBB+/A2' (Triple B plus/A Two) with a “Stable” outlook. Medium to long term rating of 'BBB+' indicates adequate credit quality; Protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short term rating of 'A2' indicates a good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Previous rating action was announced on June 03, 2024.
KSSML is an Unlisted Public Limited Company incorporated on April 23, 1992. The registered office of the Company in Lahore, Punjab. The manufacturing unit of the Company is located in District Kasur, Punjab. The principal activity of the Company is manufacture and sale of yarn.
Assigned ratings take into account the business risk profile of Pakistan’s textile spinning sector, which is currently assessed as high to medium. The sector remains exposed to demand cyclicality, competitive pressures, energy cost volatility, and regulatory changes. Yarn manufacturing continues to face challenges stemming from raw material availability, limited product diversification, and substitution of domestic yarn with duty- and tax-exempt imports. A shift in global procurement patterns and political uncertainty has further impacted export orders. Cotton output remained below domestic requirements during the current season, with declining cotton cultivation driven by the movement toward higher-margin crops. The withdrawal of export facilitation and regionally competitive energy tariffs, coupled with an increase in regulatory compliance and tax obligations, has increased the operating burden on spinning units. High energy tariffs continue to weigh on profitability due to limited cost competitiveness against regional peers. Despite these challenges, the assigned ratings draw support from demonstrated sponsor backing, which has historically included interest-free financial support.
Assigned ratings also take into account the financial risk profile of the Company. Profitability remained constrained during FY24 due to a decline in volumes linked to the unavailability of sufficient raw materials following a fire incident, leading to margin compression amid low-capacity utilization. Margins recovered in the ongoing period due to changes in inventory levels and production cost adjustments. The capitalization profile remained within manageable thresholds despite fluctuations, with leverage metrics showing temporary improvement due to insurance proceeds and low stock levels FY24. A subsequent increase in borrowings to procure fresh inventory led to normalized gearing and leverage levels in 3QFY25. Liquidity remained adequate overall, although coverage metrics remained under pressure due to elevated financing costs and reduced cash flows. Improvement in coverage in the ongoing period was supported by lower interest rates and partial recovery in profitability, although internal liquidity had to be utilized to meet coverage requirements. The Company has historically relied on balance sheet liquidity to address shortfalls.
Going forward, ratings will remain sensitive to trends in global demand, sector-specific regulatory developments, and the Company's ability to sustain operational performance. Key sensitivities include maintenance of adequate liquidity buffers, stabilization of coverage metrics, and sponsor support in the event of cash flow shortfalls.
For further information on this rating announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.
Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf