Press Release

VIS Maintains Entity Ratings of Al-Karam Textile Mills (Private) Limited

Karachi, April 04, 2024: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of Al-Karam Textile Mills (Private) Limited at ‘A/A-2’ (Single A/A-Two). Medium to long-term rating of ‘A’ reflects 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 rating has changed to ‘Stable’ from ‘Negative’. Previous rating action was announced on May 30, 2023.

AKTM is part of Al-Karam Group, is a vertically integrated textile setup with operational history of nearly four decades. Product portfolio includes a variety of yarns ranging from coarse to fine counts, fabric, home textiles, institutional textiles and garments. AKTM also has a retail arm namely Alkaram Studio, which was founded in 2010 and has since become a prominent local brand, with 62 retail outlets spread nationwide.

The assigned ratings reflect the medium business risk profile inherent in Pakistan's textile sector, characterized by exposure to economic cyclicality and strong competition. Performance within this sector is heavily influenced by broader economic conditions, making it susceptible to demand fluctuations driven by both domestic and international economic factors, particularly its reliance on exports. Additionally, supply-side risks such as local cotton crop production and dependence on imported raw materials expose the sector to considerable exchange rate risk.

Assigned ratings consider the Company’s business updates wherein AKTM showcased revenue growth mainly attributed to rupee depreciation. This along with other operational efficiencies also supported in augmented gross margins during the period under review. Further, this notable increase in gross margins also uplifted the Company’s net margins despite an increased operating cost and financial charges. Going forward, management expects gross margins to stay at same range amid higher operational efficiency due to newly established spinning plant and other measures including upcoming additions in solar plant, boilers and steam generations along with strict focus on raw material procurement strategy. Given ratings will remain sensitive to the Company’s ability to implement successfully the ongoing capex plan and realize it’s provided projected profitability.

Assigned ratings take into account the Company’s financial risk profile which exhibited adequate cashflow and liquidiy indicators wherein annualized Debt Service Coverage Ratio (DSCR) inched down to stood at 1.32x as at Dec’23, after witnessing a marginal improvement in FY23 (Jun’23: 1.80x, Jun’22: 1.72x). Current ratio largely remained intact during the review period. Going forward, management has forecasted the liquidity and cashflow profile to stay stable during the rating horizon. On the capitalization front, gearing and leverage ratios has declined slightly despite the increase in debt profile. Going forward, as per the management projected numbers, capitalization profile is forecasted to gradually improve further during the rating horizon. Ratings will remain dependent on AKTM’s ability to achieve forecasted numbers including adequate DSCR and liquidity along with maintenance of capitalization profile.

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 .