Press Release

VIS Reaffirms Entity Ratings of Sohail Textile Mills Limited

Karachi, December 04, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Sohail Textile Mills Limited ('SOT' or 'the Company') at ‘BBB-/A-2’ (Triple B Minus/A-Two). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes 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’. Previous rating action was announced on October 19, 2022.

Sohail Textile Mills Limited is a public limited (unlisted) company with its main business activity in manufacturing and selling yarn products. SOT was incorporated in 1981. The Company’s registered office is situated in Karachi while its head office is in Lahore. SOT’s manufacturing facility is located at 09-KM Sheikhupura, Sargodha Road, District Sheikhupura, Punjab.

"Assigned ratings take into account the business risk profile which is characterized by sensitivity to economic cyclicality and intense competition within the spinning sector in Pakistan. In FY23, the sector faced significant headwinds due to damaged cotton crops, inflation, and foreign exchange constraints, leading to a decline in yarn production and profitability. Going forward, global outlook for cotton production is expected to slightly recover. However, local challenges persist which includes high interest rates, increasing energy costs, and difficulties in obtaining letters of credit (LCs). These factors are likely to result in continued sluggish performance for the spinning sector in FY24.

Ratings also consider contraction in the top line, which is primarily attributed to the global economic downturn which dampened overall demand during the period. This decline in sales coupled with the increase in raw material costs also translated into reduced gross and operating margins. Moreover, net margins were further impacted by a surge in finance costs from higher interest rates, despite reduction in short-term debt drawdown. As the Company experienced reduced operations, working capital requirements decreased, thereby easing pressure from the capitalization profile with lower short-term borrowings. The Company has planned to install a small stitching unit, the cost of which will be fully financed through internal cash generation. Coverage profile of the Company has come under stress as a result of lower profitability, however, liquidity profile remained commensurate with the assigned ratings.

Going forward, the Company’s ability to successfully manage Capex requirements through internal sources as well as achievement of its projected plans will be a key sensitivity for future ratings. Moreover, improvement in the profitability profile as well as coverage benchmarks while maintaining capitalization indicators will also remain important considerations."

For further information on this ratings announcement, please contact Saeb Muhammad Jafri at 021-35311861-64 (Ext. 202) and/or the undersigned at 021-35311861-64 (Ext. 201) or email at

Javed Callea

Applicable Rating Criteria: Corporates (May 2023):

VIS Issue/Issuer Rating Scale

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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .