Press Release

VIS Reaffirms Entity Rating of Siara Textile Mills (Pvt.) Limited

Karachi, February 27, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Siara Textile Mills (Pvt.) Limited (‘STML’ or the ‘Company’) to ‘BBB/A-2' (‘Triple B/A-Two’). Medium to long term rating of ‘BBB’ indicates adequate credit quality; Protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur 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 remains Stable. Previous Rating action was announced on November 10, 2022.

STML is a small-sized spinning unit, with shareholding vested in the sponsoring family who is actively involved in day-to-day operations of the organization. The company is principally involved in production and sale of yarn, and operates through its head office at Faisal Town, Lahore, employing over 400 workers.

Assigned ratings for STML incorporate an elevated business risk profile due to cyclicality and high competition in the sector. The sector’s performance is influenced by broader macroeconomic conditions, making it vulnerable to fluctuation in demand driven by economic factors. The cost of production was constrained by increase in energy prices and an elevated policy rate in the country. During the year, reduced availability of cotton as a result of crop damage and import restrictions, coupled with recessionary trends in international markets hampered operational performance of the industry in FY23. Going forward, the sector’s performance is expected to remain sluggish owing to challenges including high interest rates, increasing energy costs, and sustained inflationary pressures.

Assigned ratings also consider the Company’s financial risk profile. In FY23, the profitability profile was constrained by substantial client concentration risk and a decline in the topline. However, cost efficiency resulted in improved gross margin, while escalating finance costs, driven by higher local interest rates and increased debt drawdown, exerted pressure on net margin. Simultaneously, elevated operational costs resulted in higher working capital requirements, contributing to increased debt with heightened short-term debt utilization, causing a decline in the capitalization profile. Furthermore, the combination of lower profitability and increased finance costs also induced significant stress on the debt service coverage profile. In addition, while significant deterioration has been noted, the Company continues to maintain an adequate liquidity profile in line with assigned ratings.

For further information on this ratings announcement, please contact Mr. M. Amin Hamdani at 021-35311861-64 (Ext. 217) and/or the undersigned at 021-35311861-64 (Ext. 201) or email at info@vis.com.pk.






Javed Callea
Advisor

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 .