Press Release

VIS Maintains Entity Ratings of Naveena Industries Limited

Karachi, January 15, 2024: VIS Credit Rating Company Limited has maintained the entity ratings of Naveena Industries Limited (‘NIL’ or ‘the Company’) to 'A-/A-2' (‘Single A Minus/ A-Two’). 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-2' indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Negative’ to 'Stable’. Previous Rating action was announced on December 30, 2022.

Naveena Industries Limited, incorporated in 1966, is primarily involved in the manufacturing and sale of export and local fabric. Around four-fifths of the Company’s sales comprise exports sales, as it has signed a manufacturing bond, requiring it to export around 80% of the yearly output. NIL’s holding entity, Naveena Holdings, also owns a spinning unit by the name of Ahmed Oriental Textile Mills Limited. Such a vertically integrated structure helps the Company to benefit from economies of scale and ensure improved operational efficiency. Moreover, the Company has recently established its Home Textile Division which will focus mainly on exports to the US and UK markets.

Assigned ratings incorporate elevated business risk in the textile sector, stemming from a weak macroeconomic environment, high-interest rates, inflationary pressures, escalating raw material costs, ongoing energy crisis, and a global demand slump. Despite the industry's historical significance, these factors pose challenges to margin sustainability and future growth.

Change in outlook is supported by the Company's financial performance amid prevalent economic challenges. Despite a contraction in the top line, NIL reported improved gross and operating margins, capitalizing on inventory gains amid increasing prices of raw materials in FY23. Capitalization indicators witnessed positive trends, marked by reduced short-term borrowing supported by an ease in inventory buildup during the period under review. The liquidity profile has remained adequate with a steady current ratio and healthy cash reserves. Assigned ratings take comfort from continued availability of these reserves as support against the risk associated with increasing strain on the coverage profile, as NIL intends to use them to minimize debt drawdown and ease pressure on its debt service coverage.

Going forward, ratings will remain sensitive to the Company’s ability to improve its coverage and capitalization profile in line with assigned ratings. Moreover, maintenance of key operational metrics will also continue to be important consideration for future ratings.

For further information on this ratings announcement, please contact Mr. Saeb Muhammad Jafri at 021-35311861-64 (Ext. 202) and/or the undersigned at 021-35311861-64 (Ext. 207) or email at info@vis.com.pk.


Sara Ahmed
Director

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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