Press Release

VIS Reaffirms Entity Ratings of Indus Lyallpur Limited

Karachi, October 25, 2024: VIS Credit Rating Company Limited (VIS) reaffirms entity ratings of Indus Lyallpur Limited (“ILL” or “the Company”) at 'A-/A-2' (Single A minus/A-Two). Medium to long term rating of 'A-' indicates 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 sound short-term liquidity factors. Outlook on the rating is “Stable’’. Previous rating action was announced on September 28, 2023.

ILL, incorporated in 1992, is a public unlisted company engaged in the manufacturing and sale of yarn. It operates as a wholly owned subsidiary of Indus Dyeing and Manufacturing Company Limited (IDMCL). ILL is part of the Indus Group, which operates four cotton ginning factories and five yarn spinning mills along with a terry towel production unit and a 50 MW wind power project.

Assigned ratings take into account the medium to high business risk profile of the textile sector in Pakistan, influenced by challenging local and global economic conditions, intense competition, and high exposure to economic cyclicality. The sector’s performance remains susceptible to demand fluctuations, global geopolitical challenges, and liquidity constraints due to delays in government sales tax refunds. Additionally, supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the industry to exchange rate risk.

Despite an increase in export sales driving higher revenues, operational margins remained constrained by elevated energy and raw material costs, leading to a decline in profitability and a negative net margin. Rising finance costs under a high-interest environment impacted the Company’s coverage ratios, with a weaker debt service coverage ratio. Liquidity remained adequate, with steady short-term debt coverage metrics and sufficient access to credit lines to meet obligations. The Company’s capitalization structure remained stable, supported by reduced short-term debt utilization and consistent working capital management.

Going forward, ratings remain sensitive to improvements in profitability, particularly through easing inflation, a reduction in local policy rates, and stabilization in raw material prices. Management’s ability to maintain liquidity and improve coverage metrics will be key considerations. A recovery in funds flow from operations is essential to relieve pressure on debt service coverage, while further adjustments in local policy rates could provide additional relief. The ratings remain dependent on the Company’s ability to sustain improvements across key financial indicators and to manage sector-related risks effectively.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk










Applicable Rating Criteria:
Industrial 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 .