Press Release

VIS Reaffirms Entity Ratings of Indus Lyallpur Company Limited

Karachi, September 28, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Indus Lyallpur Company Limited (ILCL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. Long Term Rating of A- reflects good credit quality; protection factors are adequate. Risk factors may vary variable with possible changes in the economy. The 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 and risk factors are small. Previous rating action was announced on August 18, 2022.

Assigned ratings incorporate ILCL’s association with Indus Group of Companies which has been operating in the textile sector for over five decades. Business risk profile of the Company is constrained by current weak macroeconomic environment both globally and locally which is marked by demand slowdown, high interest rate situation, inflationary pressures and ongoing energy crisis, thereby posing a challenge to the Company.

Revenue of the Company has demonstrated a robust growth in FY21 and subsequently in FY22, however, the growth has been subdued during 9MFY23 primarily due to an economic slowdown in local and export markets. Export sales (direct and indirect) continue to account for a major proportion of revenue, with China being the main destination for direct exports. Gross margins of the Company recorded an increase during FY22 owing to inventory gains on the back of higher yarn prices along with favorable cotton prices. However, the same came under pressure during 9MFY23 attributable to elevated input costs largely led by currency devaluation and higher fuel charges. Net margins further weakened due to escalation in finance costs. Ratings also factor in elevated debt levels, weakening in the cash flow coverages and debt servicing ratio (DSCR). While capitalization indicators have increased on account of increase in the quantum of debt, gearing and leverage levels remain at comfortable levels. Given the challenging market dynamics and pressure on margins, maintaining financial ratios at levels that commensurate with the benchmarks for the assigned ratings will be important going forward.

For further information on this rating announcement, please contact Ms. Asfia Amanullah (Ext: 212) or the undersigned (Ext. 207) at 021-35311861-70 or email at info@vis.com.pk.


Sara Ahmed
Director

VIS Entity Rating Criteria: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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