Press Release

VIS Reaffirms Entity Rating of Soorty Enterprises (Pvt) Limited

Karachi, September 06, 2024: VIS Credit Rating Company Limited (VIS) reaffirms entity ratings at ‘AA-/A-1’ (Double A Minus/A-One) for Soorty Enterprises (Pvt) Limited. Long-term entity rating of ‘AA-’ reflects high credit quality, and strong protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-1’ indicates strongest likelihood of timely repayment, with outstanding liquidity factors. Outlook on the assigned ratings is ‘stable’. Previous rating action was announced on July 07, 2023.

Soorty Enterprises (Private) Limited (“SEL” or “the Company”) is a major manufacturer and exporter of denim products with vertically-integrated production facilities based in Karachi. As one of the top exporters, the Company has a significant international presence, including subsidiaries in Bangladesh and the UAE, as well as marketing offices in the Netherlands, Spain, USA and Turkey.

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 take into account the Company’s business updates, whereby the Company’s sales achieved a growth rate of 13% in FY23 on the back of rupee devaluation. Major portion (90%) of the Company’s sales of PKR 77.9 billion in FY23 are generated through exports, which places the Company at sixth position among the top ten exporters in the country for 2023. In 2024, the company climbed to the fifth position. Company’s net profit margin marginally declined during FY23 due to higher finance costs amid elevated borrowing rates. Company’s sales during 9M’FY24 have shown recovery in demand with increase in sales volume. Though the gross margins remained stable, the net margins came under pressure in 9MFY24.

Assigned ratings also take into account the financial risk profile of the Company; registering notable growth in equity base during FY23 and a modest growth in 9M’FY24. The Company’s debt levels have reduced during the review period resulting in a conservative gearing ratio of 0.48x as of end-Mar’24. Cash flow coverage metrics though depicted marginal weakness during the review period however remained adequate with a DSCR of 2.9x as of end-Mar’24. Maintenance and improvement in debt service coverage will remain an important rating consideration.

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 .