Press Release

VIS Assigns Initial Ratings to Akram Cotton Mills Limited

Karachi, February 27, 2024: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘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 is ‘Stable’.

Akram Cotton Mills Limited (‘ACML or the Company’) is engaged in the business of manufacturing and sale of yarn. It specializes in the production of carded and combed yarn mainly for hosiery purposes. During FY23, the performance of textile sector faced constraints amid demand slowdown due to recessionary trends in both local & international economies, shortage of cotton due to floods and import restrictions, government withdrawals of incentives including subsidized financing & subsidized gas, increase in fuel & power cost and escalated inflationary pressures. In the current fiscal year (FY24), demand has started to recover, in addition to optimism on account of bigger cotton crop which is expected to alleviate pressure on input costs and margins. The same has already started to reflect in 1HFY24 profitability of the textile sector companies.

Ratings incorporate the cyclical nature of the business, wherein ACML topline and profitability was impacted in FY23 amid demand slowdown which has led to reduced plant utilization in FY23. Resultantly, net sales of the Company registered a notable volumetric decline of 42% Y/Y in FY23. Net sales dropped to Rs. 2.9b in FY23 (FY22: Rs. 4.4b). However, in the current fiscal year, parallel to the industry trend, the topline of the Company has rebounded to clock in at Rs. 3.0b in 1HFY24. With volatility in the topline during the period under review, ACML has posted a net loss of Rs. 66mn (FY22: Rs. 239m) in FY23 while the Company posted a net profit of Rs. 75mn in 1HFY24. Going forward, although profitability has started to recover, margins are expected to stay lower than FY22 levels amid on-going inflationary pressures and high finance cost in FY24.

Ratings also incorporate the impact of negative FFO in FY23 which resulted in Debt Service Coverage Ratio (DSCR) to drop at 0.22x. However, the same has recovered to 1.47x in 1HFY24, contributed by higher internal cash generation. Given ratings also account for leveraged capital structure of ACML wherein gearing and leverage indicators stood at 3-year high levels of 1.38x and 1.89x as of Dec’23. Liquidity and cashflow profile of ACML is considered adequate. Going forward, further recovery in margins along with improvement in capitalization indicators will remain important from a ratings perspective.

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

Javed Callea

Applicable Rating Criteria: Corporates:
VIS Issue/Issuer Rating Scale

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