Press Release
VIS Credit Rating Company Assigns Initial Entity Ratings to Hantex
Karachi, February 02, 2021: VIS Credit Rating Company Limited has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/ Single A-Two) to Hantex (Hantex). Long Term Rating of ‘BBB+’ denotes good credit quality and reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short Term Rating of ‘A-2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
Hantex deals in manufacturing and sale of yarn and denim fabric. The firm operates through a unit located at Landhi, Karachi, Pakistan. Assigned ratings incorporate diversified experience of the sponsoring group- Machiyara Group of Companies, which has known presence in the construction, textile, packaging, chemicals and tyre sectors. Group companies include Denim Clothing Company, Han Apparel, Denim Clothing (Pvt) Limited, SH Packages (Pvt) Limited, H2 Ready Mix, HS Create, H&H Agro, Bond Chemicals and Bond Tyres. Given the firm’s shareholding structure and involvement of owners in management roles, status of being a partnership concern, independent oversight needs to be introduced.
Ratings also take into account moderate business risk profile supported by stable and growing demand for denim products. VIS expects demand for denim products to remain stable over the medium term. Given the favorable policies & incentives of the government on enhancing exports and trade disruption between US and China, there is significant opportunity for local players to enhance exports. Increased expansion by leading denim and non-denim textile players is also on account of favorable demand and expected increase in orders. Even though impact of Covid-19’s second wave remains elevated, we expect the order book for the industry to remain strong in the ongoing year, easing our business risk concerns.
Financial risk profile of the firm carries moderate risk with satisfactory profitability liquidity and capitalization indicators. Sales revenue of the firm has grown at a CAGR of 7% over the past four years comprising almost entirely of export (direct and indirect) sales. Client concentration risk is considered on the higher side with around four-fifth of the sales revenue being contributed by sister concern; however the same is mitigated as we understand that the sister concern maintains stable order book with major European brands. Gross profitability of the company has depicted improvement over the last two years on account of higher average selling prices and efficient raw material procurement. Overall profitability profile of the firm has declined on account of higher finance cost incurred on elevated borrowings. Management expects to maintain profitability levels at current levels going forward. Liquidity profile of the company is considered adequate in view of sufficient cash flows coverage of outstanding obligations. However, extended working capital cycle, sizeable trade debts in relation to sales revenue, and high single client concentration in total trade debts necessitates utilization of short term borrowings. Future trend with respect to the same will be an important rating consideration. Going forward, management envisages maintaining liquidity indicators at current levels, given no expansion plans in the medium term. Leverage indicators have increased on a timeline basis owing to elevated debt levels. Given no projected increase in debt levels, management foresees leverage indicators to remain at similar levels, going forward.
For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext.306) at 021-35311861-70 or email at info@vis.com.pk.
Faryal Ahmad Faheem
Deputy CEO
Applicable Rating Criteria: Industrial Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf