Press Release

VIS Reaffirms Entity Ratings of Shadab Textile Mills Limited

Karachi, January 08, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Shadab Textile Mills Limited (‘STML’ or ‘the Company’) at 'A-/A-2' ('Single A Minus'/'A-Two'). Medium to long-term rating of ‘A-’ signifies good credit quality with adequate 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. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings remains ‘Negative’. The previous rating action was announced on December 02, 2022.

Shadab Textile Mills Limited incorporated as a public limited company in August 1979 was subsequently listed on the Pakistan Stock Exchange (‘PSX’). STML is engaged in the business of manufacturing, selling, buying and dealing in yarn of all types. The registered office of the Company is situated on the 6th Floor, A-601/A, City Towers, Main Boulevard, Gulberg-II, Lahore. The manufacturing facilities of the Company are located at Faisalabad Road, Nasimabad, Shahkot, District Nankana Sahib & 1-KM Chunian Road, Habibabad, District Kasur.

Assigned ratings for STML incorporate a constrained business risk profile attributed to the spinning sector's susceptibility to economic cyclicality and heightened competition. The spinning sector in Pakistan, comprising of over 400 mills, faces challenges from various economic and environmental factors, including crop damage by flooding and inflation in FY23. Prospects of cotton production in ongoing season are favorable as compared to last cotton season but still below expectations. However, the sector's performance is closely tied to broader economic conditions, rendering it vulnerable to demand fluctuations.

Assigned ratings also consider the financial risk profile of STML. During FY23 and 1QFY24, the Company despite marginal increases in the topline has experienced significant erosion in gross margins in view of input costs rising faster than sales values. Moreover, escalating pressure from rising interest rates led to negative net margins in both the abovementioned periods leading to losses therein. However, despite a negative bottom line and reduction in the equity base, the Company has managed to keep its capitalization metrics mostly intact with reduced debt utilization during FY23. Moreover, pressure on the coverage profile is also incorporated and is regarded as a strain on assigned ratings. The management expects some recovery in FY24 which would be challenging given the economic slowdown.

Going forward, ratings will remain sensitive to improvements in the Company’s profitability and coverage profiles. Maintenance of the capitalization and liquidity profile commensurate with assigned ratings will also be important considerations for future reviews.

For further information on this ratings announcement, please contact Mr. Saeb Muhammad Jafri at 021-35311861-64 (Ext. 202) and/or the undersigned at 021-35311861-64 (Ext. 201) or email at info@vis.com.pk.




Javed Callea
Advisor

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

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