Press Release

VIS Reaffirms Entity Ratings of Shahbaz Garments (Private) Limited

Karachi, September 06, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Shahbaz Garments (Private) Limited (SGL) at ‘A-/A-2’ (Single A Minus/A-Two). Long-term rating of ‘A-’ signifies good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short term rating of ‘A-2’ signifies good certainty 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 July 26, 2021.

Assigned ratings to SGL, a subsidiary of Beltexco Limited (based in Hong Kong), incorporates significant expertise of around five decades in manufacturing and sale of a wide range of industrial gloves to both local and export market with more than three fifth of the sales garnered to the international market through direct and indirect exports. The company is a family owned business with ultimate parent company (Pangea Limited) based in Canada.

Assessment of financial risk profile reflects growth in revenue base, gross profitability profile, adequate liquidity profile and conservative capital structure. Double-digit growth in topline during 2021 was attributable to uptick in exports quantum, benefit of rupee devaluation and ease in global macroeconomic conditions. Client-wise concentration remains on the higher side, however comfort is drawn from long-term relationships with major clients. While Gross Margins of the Company improved in the review period largely due to inventory gains and higher sales revenue, net profitability reduced due to higher operating and non-operating expenses led by higher salaries & donation and provision for tax assessment & sales tax refundable, respectively in 2021. Moreover, absence of one-off reversal of provision against taxes recoverable in 2021 further impacted net profit levels. In line with decline in net profitability of the Company, cash flow coverages against obligations reduced, however remains sufficient for the assigned ratings. On the capital front, SGL maintains a conservative capital structure with expansions being financed majorly through internal cash generation. Major debt portfolio (around 75%) comprises short-term debt to finance working capital needs. With gradual repayment of debt and retention of profits, leverage indicators are expected to improve over the rating horizon.

Ratings remain dependent on maintaining projected profitability, liquidity and capitalization profile in view of projected short-term slowdown, higher debt servicing cost and implementation of super tax is considered important.

For further information on this rating announcement, please contact Ms. Asfia Aziz (Ext: 212) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk.


Javed Callea
Advisor

VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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