Press Release

VIS Maintains Entity Ratings of Zephyr Textile Limited

Karachi, December 11, 2024: VIS Credit Rating Company Limited (VIS) maintained entity ratings of Zephyr Textile Limited (‘ZTL’ or ‘the Company’) at ‘BBB+/A2’ (Triple B Plus/A Two). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality; Protection factors are reasonable and sufficient. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A2’ denotes good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings has been changed to ‘Stable’ from ‘Positive’. The previous rating action was announced on November 17, 2023.

ZTL is a publicly listed company that operates a greige fabric and towel weaving unit, a towel dyeing and processing unit and a newly established garment processing unit. The Company’s headquarters are located in Lahore with the weaving unit and power plant situated in Bhai Pheru and the towel unit located in the Kasur District.

In FY24, cotton production in Pakistan increased by 79% compared to FY23 due to a low base but only by 17% compared to FY22. However, during the current fiscal year, as of Oct'2024, cotton production remains significantly low, with a 59.4% decline, attributed to reduced cultivation areas, rising costs, lack of subsidies, and climate challenges while for FY25, local cotton production is expected to remain grim. Despite this, textile exports grew in 1QFY25 due to cheaper imported cotton during the period and a focus on value-added products. Going forward, textile sector will remain exposed to global and local cotton market conditions, local inflation, and FX risks which will impact the overall sector's profitability.

The assigned ratings reflect ZTL’s modest revenue growth, driven by increased exports, primarily due to higher volumes. Margins have declined due to higher expenses, however, the management’s focus on value-added products and the newly launched garment segment is expected to support gradual growth in both revenue and profitability, going forward.

ZTL’s liquidity position remains manageable, although cash flow and debt coverage have deteriorated. Gearing and leverage levels have improved despite, the increase in debt reflecting a reduction in financial risk. However, moving forward, it will be crucial to maintain and improve liquidity position, while also focusing on improving profit margins, cash flow and debt coverage to support the ratings.




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

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 .