Press Release

VIS Credit Rating Company Reaffirms Entity Ratings of Sunrays Textile Mills Limited

Karachi, August 22, 2022: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of Sunrays Textile Mills Limited (SUTM) at ‘A-/A-1’ (Single A Minus/A-One). Long term entity rating of ‘A-’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, liquidity factors are excellent and supported by good fundamental factors. Risk factors are minor. Outlook on the assigned is ‘Stable’. The previous rating action was announced on June 08, 2021.

SUTM is a part of the Indus Group of Companies, which is a sizeable player in the country’s textile business with an annual turnover of over $300m. Within textile sector, Indus Group has over five decades of experience and operates through five entities. The group is primarily engaged in the business of cotton ginning, yarn spinning, greige fabric manufacturing and home textiles (primarily towel business). Principal activities of SUTM include trade, manufacture and sale of yarn. The Company also operates ginning units and ice factories under leasing arrangements, which remained largely closed this year.

Assigned ratings take into account of increase in topline of the Company, on account of higher volumetric sales as well as increase in selling prices due to strong demand for textile products in the local and international market. Revenues emanating from the Company’s hosiery segment continued to register growth during FY21 despite challenges led by COVID-19 pandemic. Gross margins of the Company also increased during FY21 and 9MFY22. Higher yarn prices coupled with favorable cotton prices resulted in significant inventory gains and uptick in margins, which trickled down into improved operating and net margins for the Company. However, ratings remain constrained to industry vulnerability to fluctuations in commodity prices. Uncertainty around local economic situation as well fears of a global recession will continue to weigh in on the long-term demand prospects for the industry. Sustainability of margins, therefore, will remain important for ratings, going forward.

Assessment of financial profile depicts strengthening of the Company’s profitability on account of heathy cash flow generation during FY21 and 9MFY22. Subsequently, Company’s Fund Flow from Operations (FFO) also increased which led to higher debt service coverage. Capitalization indicators also remain in line with the assigned ratings. The Company’s long-term debt levels have fairly remained stable over the last three years, however, with higher profitability and profit retention, short term debt has reduced, leading to improvement in gearing and leverage indicators. Assigned ratings are supported by low gearing structure and continuation of the same will remain important for ratings, going forward. In addition, maintaining revenue growth and sustaining margins and profitability profile, leading to augmentation of equity base will remain key for ratings.

For further information on this rating announcement, please contact Ms. Sara Ahmed or the undersigned (Ext: 207) at (021) 35311861-66 or email at info@vis.com.pk.


Sara Ahmed
Director

Applicable Rating Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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 .