Press Release
VIS Assigns Initial Rating to Z.A. Corporation (Pvt.) Limited
Karachi, October 31, 2019: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to Z.A. Corporation (Pvt.) Limited (ZAC). The medium to long-term rating of ‘BBB’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned ratings is ‘Stable’.
ZAC is a newly established medium-sized spinning unit located in Faisalabad. Shareholding of the company is vested with Sheikh Danish Ali who is actively involved in day to day affairs of the company. The assigned ratings take into account growth in revenue and positive bottom line after commencement of commercial operations in October 2017 and subsequent enhancement of production capacity in December 2018. Product portfolio comprises viscose and cotton yarn, and unregistered persons account for majority sales, however, the company manages the counterparty risk by making sales on cash/advance basis. The company registered sizeable growth in revenue during FY19, driven largely by increase in volumetric sales of viscose and cotton yarn, with viscose accounting for three-fourth of total sales. However, as the company is largely dependent on imported raw materials, slight contraction in gross margin was recorded during FY19 due to rupee depreciation despite modest increase in selling price.
Underpinned by healthy cash flows generation, the ratings draw comfort from adequate debt service coverage. However, liquidity indicator in terms of current ratio is around the minimum threshold level. The increase in gearing and debt leverage was witnessed during the period under review on account of elevated working capital requirements as the company made further enhancement in production capabilities and entered its first full-year of production cycle. Ratings are constrained by vulnerability of the spinning sector to raw material prices, foreign exchange risk, and any adverse changes in the regulatory duties structure. The ratings are sensitive to any considerable change in profitability, debt service coverage and leverage indicators.
For further information on this rating announcement, please contact undersigned (Ext: 201) or Mr. Maimoon Rasheed at 021-35311861-70/ 042-35723411 or fax to 021-35311872.
Javed Callea
Advisor
VIS Entity Rating Criteria Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx