Press Release

VIS Reaffirms Entity Rating of Comfort Knitwears (Pvt.) Limited

Karachi, September 05, 2024: VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of Comfort Knitwears (Private) Limited (CKPL) at ‘A-/A-2’ (Single A Minus/A-Two). Medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes Good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on July 12, 2023.

CKPL is part of the Comfort Group and operates as a fully integrated knitwear company including spinning, knitting, dyeing, and stitching facilities allowing for comprehensive control over the production process and quality. With over 30 years of experience, CKPL specializes in dyed yarn and a wide range of knitted garments. The Company is a family-owned concern with active participation in management by the sponsoring family. CKPL is based in Lahore and employs more than 2,600 workers.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably 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 lengthy process of sales tax refunds. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

Assigned ratings consider CKPL’s business updates in FY23, during which export revenue remained intact despite a decline in volume, while local sales decreased due to production curtailment of yarn and raw material, resulting in an overall decline in the topline. The Company primarily exports to European markets as well as to the USA. Client concentration remained high with the top ten clients consistently contributing over 80% of the revenues. Gross margins declined amid rising fuel and power costs, while net margins also declined as a result of increased finance costs driven by elevated debt levels and high interest rate. In 1HFY24, gross and net margins further weakened due to higher raw material and energy costs, alongside a significant drop in other income. As per management's projections, the topline is expected to reach PKR 10-11 billion for FY24. This growth is anticipated to restore profitability margins.

The assigned ratings also factor in CKPL’s financial risk profile. In FY23, debt coverage metrics have weakened due to higher finance costs, with increased short-term borrowings. However, the same has improved in 1HFY24. Liquidity indicators of the Company remained adequate during the review period. Capitalization indicators has weakened in FY23 amid higher short-term borrowings, however, the same has improved at end’1HFY24. Sustaining a strong financial risk profile will remain critical from a ratings perspective.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.

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 .