Press Release

VIS Reaffirms Entity Ratings of J.K. Spinning Mills Limited

Karachi, August 08, 2024: VIS Credit Rating Company Limited (‘VIS’) reaffirmed entity ratings of J.K. Spinning Mills Limited ('JKSM’ or 'the Company’) at 'A-/A-1' (‘Single A minus/A-One’). Medium to long term rating of 'A-' indicates good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of 'A-1' indicates Strong likelihood of timely repayment of short-term obligations with excellent liquidity factors. Outlook on the assigned ratings remain ‘Stable’. Previous Rating action was announced on May 22, 2023.

JKSM, a composite textile unit of J.K Group, is a vertically integrated facility located in Faisalablad producing fine yarn, fabric and home textile make-ups for over three decades. J.K Group currently owns four other companies: J.K Power Limited, J.K Agriculture Farms (Private) Limited, Fine Fabrics (Private) Limited, and J.K Tech (Private) Limited. The majority shareholding is held by the sponsoring family, which is actively involved in day-to-day business affairs. The Company has been awarded various global standard certifications and has a workforce of over 3,200 employees.

Assigned ratings incorporate the medium to high business risk profile of the textile sector in Pakistan, marked by high exposure to economic cyclicality and intense competition. The sector's performance is influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors. Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints due to delays in sales tax refunds. Additionally, the industry is sensitive to supply-side risks, including local cotton crop production, which impacts margins, and reliance on imported raw materials, exposing the sector to significant exchange rate risk and government import restrictions.

Assigned ratings also incorporate the Company's profitability, capitalization, liquidity, and coverage profiles. The profitability profile shows the impact of higher input costs and inflationary pressures, along with higher finance costs, which have weakened margins, while remaining adequate, despite benefits from rupee devaluation on export sales. The capitalization profile reflects an increase in both long-term and short-term debt to finance CAPEX and working capital needs, leading to elevated gearing and leverage ratios. The liquidity profile has weakened due to a higher increase in current liabilities compared to current assets, while the coverage profile has contracted as a result of declining profitability and increased financial charges, impacting the Company's ability to service debt.

Going forward, key business and financial risk indicators include the Company's ability to manage topline growth in the face of economic challenges, maintain margins, and effectively manage debt levels. The ratings also take into account the successful implementation of the Company’s plans to improve operational efficiencies. Management's commitment to enhancing key financial ratios and improve the liquidity and coverage profiles will be important for the ratings, going forward, along with maintaining a stable capitalization profile and improving profitability and liquidity metrics.

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

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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .