Press Release

VIS Reaffirms Entity Rating of Feroze 1888 Mills Limited

Karachi, February 27, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Feroze1888 Mills Limited (‘FML’ or the ‘Company’) to 'AA-/A-1' (‘Double A-Minus/A-One’). Medium to long term rating of 'AA-' indicates High credit quality; Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Short term rating of 'A-1' indicates High certainty of timely payment; Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings remains Stable. Previous Rating action was announced on January 13, 2023.

FML, established in 1972, principally engaged in the production and export of specialized yarn and textile products, with a strong presence in the USA, UK, and European markets - the Company’s product line includes a wide variety of terry and non-terry items. Based in Pakistan, FML operates a comprehensive vertically integrated setup, from spinning to product packaging, and partners with 1888Mills USA.

Assigned ratings for FML incorporate a consideration of the business risk profile attributed to the government’s withdrawal of RCET (Regionally Competitive Energy Tariff) and Subsidized Financing Schemes. The cost of production for manufacturing sector increased notably with the significant increase in energy prices and an elevated monetary policy rate in the country. Moreover, recessionary trends in both local and international economies also lowered the demand. Looking ahead, the demand outlook for the textile sector is anticipated to be constrained by prevailing economic uncertainties. Nevertheless, the depreciation of the rupee has rendered country’s exports slightly more competitive in international markets. Further, slight rebound in international demand during the current fiscal year also supporting the revenue growth of textile players in the current fiscal year.

Assigned ratings also consider the Company’s business updates wherein FML demonstrated a revenue growth of 16.6% Y/Y in FY23. This growth is primarily due to the devaluation of the Pakistani Rupee, which has strengthened the top line despite a contraction in export volumes. Nonetheless, during 1QFY24, net sales grew by a stellar 96% Y/Y amid both volumetric rebound and increase in prices. Net profits shrank by 43% YoY to Rs. 1.0 bln in Q1 FY24. Margins have seen a rebound in FY23, mainly owing to Rupee devaluation. For the current fiscal year, the management expects margins to remain under pressure mainly owing to higher energy prices, inflationary pressures and increased finance cost.

Ratings are also underpinned by the Company’s financial risk profile. Given the enhanced cost of production, FML’s overall debt has risen mostly on account of higher drawdown of short-term debt amidst increased working capital needs. However, capitalization profile stayed intact at conservative levels with the increase in profitability. Funds from Operations (FFO) along with cashflow coverages and Debt Service Coverage Ratio (DSCR) witnessed an improvement in FY23 due to higher profitability. However, FFO and DSCR registered some weakening albeit remained at comfortable levels. Liquidity profile of the Company remained strong during the period under review.

For further information on this ratings announcement, please contact Mr. M. Amin Hamdani at 021-35311861-64 (Ext. 217) and/or the undersigned at 021-35311861-64 (Ext. 201) or email at info@vis.com.pk.




Javed Callea
Advisor

Applicable Rating Criteria: 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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