Press Release

VIS Reaffirms Entity Ratings of Arshad Textile Mills Limited

Karachi, March 6, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings assigned to Arshad Textile Mills Limited (‘ATML’ or ‘the Company’) at ‘BBB-/A-2’ (Triple B Minus/A-Two). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes 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 is ‘Stable’. Previous rating action was announced on August 29, 2022.

Arshad Textile Mills Limited is a public unlisted company incorporated in Pakistan in 1984. Its registered office is situated in Gulberg-II, Lahore. The Company is engaged in the business of manufacturing and sale of cotton-blended yarn, along with the sale of fabric after outside conversion/processing. The manufacturing plant of the Company is situated in Tehsil Jaranwala, Faisalabad, Punjab.

Assigned ratings incorporate a constrained business risk profile attributed to the spinning sector’s susceptibility to economic cyclicality and heightened competition. The spinning sector in Pakistan, comprising of over 400 mills, faced challenges from various economic and environmental factors, including crop damage by flooding and inflation in FY23. Prospects of cotton production in ongoing season are favorable as compared to last cotton season but still below expectations. However, the sector's performance is closely tied to broader economic conditions, rendering it vulnerable to demand fluctuations.

Ratings also consider the Company’s financial risk profile. The profitability profile reflects a constrained top line and margins due to a challenging economic environment. Gross margins contracted in FY23 due to rising input costs and disruptions in cotton procurement. The capitalization profile, however, exhibits sustained improvement with ongoing equity expansion underpinned by sponsor support. The liquidity profile, while showing some stress in FY23, remains adequate with assigned ratings. However, strain on debt service coverage due to higher financial burden poses a constraint on ratings. Nevertheless, comfort is derived from a longstanding history of active sponsor support to the Company.

Going forward, ratings are underpinned by continued sponsor support with further improvement in the capitalization profile, to be commensurate with assigned ratings. Moreover, the Company’s ability to enhance its profitability, coverage and liquidity profiles will also remain important considerations for future reviews.

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

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 .