Press Release

VIS Reaffirms Entity Rating of Al Karam Towel Industries (Pvt) Ltd

Karachi, September 10, 2024: VIS Credit Rating Company Limited (VIS) reaffirms the entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) for Al Karam Towel Industries (Pvt) Ltd. Long-term entity 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 likelihood of timely repayment of short-term obligations with short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on August 01, 2023.

Al-Karam Towel Industries (Private) Limited (“AKTI” or “the Company”) is a family-owned entity specializing in towel and terry items production and export. Recently, it has entered the domestic yarn market as well. With a 20-year history, the Company operates a vertically integrated textile mills including spinning, weaving, dyeing, bleaching, stitching, packing, and finishing facilities. Product suite features terry towels, patterned bath and beach towels, bathrobes, kitchen towels, washcloths, hand towels, and shower wraps.

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, noting sales increase in FY23 mainly due to increase in effective prices. Sales continue to grow in 9M’FY24 on the back of increasing demand. The Company’s gross margins followed an increasing trend in FY23 but slightly declined during 9MFY24 due to elevated raw material cost and hike in fuel and power cost. Similarly, the Company's net margins have remained under pressure during the review period. Looking ahead, the Company anticipates an increase in margins, driven by an increased demand, renegotiating margins with the clients and improvement in operational efficiency.

The assigned ratings also account for the Company's financial risk profile. The Company showcases a healthy liquidity profile and a healthy debt service coverage ratio. As of March, 2024, the Company's equity increased due to profit retention leading to an improved capitalization profile. The ratings are sensitive to recouping margins and profitability profile, going forward.
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 .