Press Release
VIS Reaffirms Entity Rating of Indus Home Limited
Karachi, August 08, 2024: VIS Credit Rating Company Limited (VIS) reaffirms the entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) for Indus Home limited. Long-term entity rating of ‘A-’ reflects good credit quality, and adequate protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ indicates good likelihood of timely repayment of short-term obligations, with sound short-term liquidity factors. Access to capital market is good and risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on July 24, 2023.
Indus Home Limited (‘IHL’ or ‘the Company’), a wholly owned subsidiary of Indus Dyeing and Manufacturing Company Limited and part of the Indus Group, specializes in production and export of terry cloth, terry garments, and other towel/terry products. The Company operates as a vertically integrated textile mills including spinning, weaving, dyeing, fabrication, and processing units. Production infrastructure is based in Raiwind near Lahore, while the head office is located at Lahore.
Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors. Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to exchange rate risk.
Assigned ratings take into account the Company’s growth in business, whereby sales increased by 34% in FY23 and YoY growth of 28% in 9M’FY24 attributed to increased sales from yarn. The Company managed to increase its gross margins in FY23 on the back of cost saving accruing from in-house yarn production, however the gross margins slightly declined during 9M’FY24 period due to reduced sale of value-added high margin products. Net margins followed a similar trend.
The assigned ratings also take into account the Company's financial risk profile. The Company’s liquidity profile and Debt Service Coverage ratio remained satisfactory during FY23. As of June 30, 2023, the Company's equity base increased due to substantial profit retention, outpacing the increase in total borrowing, which led to slightly improved gearing position. As of March 31, 2024, there has been a slight deterioration in the Company’s debt coverage metrics, with a dip in DSCR to 1.1x and a decline in FFO to debt coverage metrics. Maintenance of DSCR will remain important from a ratings perspective. The Company maintained a satisfactory current ratio as of March 31, 2024.
For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.
Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf