Press Release

VIS Maintains Entity Ratings to Shadab Textile Mills Limited

Karachi, December 02, 2022: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Shadab Textile Mills Limited (STML). The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. The last rating action was announced on November 22nd 2021.

The revision in outlook incorporates recessionary trend in Pakistan’s major textile export markets, which has started to materialize in monthly export proceeds. In FY23, textile export proceeds are expected to fall by ~10% and profitability margins of textile operators, particularly spinners, weavers and dying companies, are expected to remain under pressure given higher input and financial costs. In case of STML, profitability and cash flow coverage indicators have come under stress. The Company’s DSCR is expected to remain stressed through the rating horizon, at ~1x, while FFO to Debt is expected to fall below 10%. Further weakening in aforementioned trends over the short-term rating horizon may affect a revisit of the assigned ratings.

Despite the sizable uptick in debt, the Company’s gearing remains on the lower side, mainly as the Company opted to retain full profitability for FY22. As per our projections, the impact of lower margins would be netted off by lower working capital requirements for the period in a way that total debt is likely to remain at similar level. Given weakening in profitability indicators, there might be a slight uptick in gearing, albeit this uptick is likely to remain measured with gearing envisaged to remain below 1x through the rating horizon. The assigned rating remains dependent on maintenance of business and financial risk metrics in line with threshold for the assigned rating.

For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA (Ext: 215) (or the undersigned (Ext: 207) at (021) 35311861-66 or email at info@vis.com.pk.

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .