Press Release
VIS Upgrades Entity Ratings of Sheikhupura Textile Mills Limited
Karachi, July 21, 2025: VIS Credit Rating Company Limited (‘VIS’) has upgraded entity ratings of Sheikhupura Textile Mills Limited ('STML’ or 'the Company’) to 'BBB+/A2' (‘Triple B Plus/A Two’) from ‘BBB/A2’ (Triple B/ A Two). 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 good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous Rating action was announced on July 24, 2024.
Incorporated as a private limited company in Pakistan STML commenced its operations in 1989. The Company is engaged in the business of manufacturing, selling, buying, and dealing in all types of yarn including different counts of blended yarn. Since 2010, the Company is also in the business of producing and selling Women Fashion Cloth under the brand name of ‘Cross Stitch’. STML belongs to the Ayesha Group which has four spinning units, with a combined capacity of more than 120,000 spindles, a leather tannery, a footwear manufacturing unit, a shoe retail chain under the brand name of ‘EPCOT’, a socks manufacturing facility, and an embroidery unit. The head office of STML is located in Lahore while manufacturing facilities are located at Ferozepur Road, Lahore and District Kasur, Punjab.
Assigned ratings take into account the business risk profile of Pakistan’s textile sector, which is characterized by moderate to high risk due to its exposure to economic cyclicality, intense international competition, and structural inefficiencies. The sector remains vulnerable to fluctuations in global and domestic demand. Cotton production volatility continues to pose risks, with recent gains offset by declining output and weather-related challenges. Rising input and energy costs, particularly due to elevated gas prices under IMF-led reforms, and a shift from the Final Tax Regime to the Normal Tax Regime, are expected to exert further cost pressures. Although recent growth in the value-added segment supports sector resilience, increased dependence on imported cotton heightens exposure to international price and currency fluctuations. Nonetheless, reduction in policy rates is expected to support sector-wide financial indicators. At the entity level, capacity utilization across both spinning and retail segments remained strong, supported by steady demand, and expanding market reach. Market penetration through outlets expansion in retail and value-added offerings continues to be a core focus of the business model.
Assigned ratings also consider the financial risk profile of the Company, which is reflected in its revenue growth primarily led by rising contribution of the retail segment. Gross margins remained stable, supported by a favorable shift in the revenue mix towards higher-margin value-added offerings. The capital structure indicates reduced reliance on short-term borrowings, with working capital partially funded through favorable supplier credit terms and internal cash generation. A temporary increase in short-term debt observed during the ongoing fiscal year is attributed to inventory buildup, which management expects to normalize by the year-end. Coverage metrics have improved, supported by increased profitability, while liquidity indicators remain stable. Modernization and other capital expenditure initiatives, mainly funded from internal resources, continue to support operational sustainability.
Going forward, ratings will remain sensitive to the Company's ability to maintain and improve operational profitability amidst challenging operating environment, sustain coverage and liquidity metrics, and optimize working capital needs while maintaining financial stability.
For further information on this ratings announcement, please contact on 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