Press Release

VIS Reaffirms Entity Ratings of Naveena Industries Limited

Karachi, March 10, 2025: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Naveena Industries Limited (‘NIL’ or ‘the Company’) 'A-/A2' (‘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 'A2' indicates 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 January 15, 2024.

NIL, established in 1966, is a leading manufacturer and seller of fabric cloth. The Company operates under a vertically integrated along with its sister concern, Ahmed Oriental Textile Mills Limited, which is a yarn spinning unit. In FY24, NIL achieved an export-to-local sales ratio of 60:30, highlighting its strong international presence. Additionally, the Company has developed a Home Textile Division that specializes in bedding products, primarily catering to export markets in the US and UK.

Assigned ratings incorporate the business risk profile of Pakistan's textile sector, which is currently assessed as high to medium. This evaluation considers factors such as demand cyclicality, competitive pressures, regulatory challenges, and energy sensitivity. The 2024 cotton season was marked by production challenges, including extreme weather conditions, water shortages, and pest infestations, reducing cotton production to around 5.20 million bales, well below the domestic industry’s requirement of ~12 million bales. Consequent reduction in local yarn production along with anomalies in taxation of local and imported yarn has put the local yarn consumers at a disadvantageous position. The transition from the Final Tax Regime (FTR) to the Normal Tax Regime (NTR) has further strained financial performance. Despite these challenges, textile exports grew in 1QFY25, driven by cheaper imported cotton and a focus on value-added products. The sector’s profitability will depend on global cotton market dynamics, inflation and FX risks.

The assigned ratings reflect the Company’s financial profile, which despite modest top-line growth, experienced a decline in profitability margins due to higher energy cost and rise in financial expense driven by elevated interest rates and increased utilization of short-term facilities for working capital financing. The Company maintained an adequate liquidity position, supported by a robust cash balance, though the current ratio declined slightly in FY24 primarily due to higher short-term borrowings and payables to fund working capital. Capitalization indicators, however, weakened due to higher short-term borrowings, primarily driven by inventory accumulation due to holdup in export orders. Also, debt coverage slightly declined as a result of lower profitability and increased debt servicing requirements.

Moving forward, an improvement in demand within the export market, coupled with growth in the home textile division, will be important from the ratings perspective.

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


Applicable Rating Criteria:
Industrial 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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