Press Release

VIS Reaffirms Entity Ratings of Sohail Textile Mills Limited

Karachi, December 2, 2024: VIS Credit Rating Company Limited (“VIS”) has reaffirmed the entity ratings of Sohail Textile Mills Limited (“STML” or “the Company”) at ‘BBB-/A2’ (Triple B minus/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 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remains ‘Stable’. Previous ratings action was announced on December 04, 2023.

STML is a public unlisted company, mainly involved in the business of manufacturing and marketing of yarn. The Company’s registered office is situated in Karachi while the head office is in Lahore. STML’s manufacturing facilities are located in District Sheikhupura, Punjab.

Assigned ratings highlight the high-to-medium business risk profile of Pakistan's textile spinning sector. This evaluation considers demand-side challenges and supply-side constraints, including raw material availability, energy shortages, and evolving regulatory policies. While domestic cotton production increased in FY24, reducing reliance on imports, elevated energy tariffs have significantly impacted operational costs. The sector also contends with competitive pressures from regional peers and macroeconomic challenges, such as currency depreciation and high inflation. Regulatory uncertainties, particularly the removal of preferential energy tariffs for export-oriented sectors, have introduced additional risks. The Company actively manages relationships with key clients, leveraging long-standing associations to mitigate risks associated with revenue concentration.

Ratings also incorporate the Company’s financial risk profile. Profitability remained constrained by increased energy and raw material costs, although the topline grew due to higher prices and product diversification. The gross margin contracted, but a gain on the disposal of fixed assets and reduced finance costs led to a marginal improvement in the net margin. The capitalization profile reflects manageable gearing and leverage levels, despite an increase driven by higher short-term debt utilization to meet elevated working capital needs. Liquidity metrics improved, supported by internal cash flows and efficient management of working capital requirements. Coverage ratios showed recovery, aided by a decline in finance costs and long-term debt obligations.

Going forward, the assigned ratings will remain sensitive to the Company's ability to navigate ongoing challenges, including energy costs, competitive pressures, and evolving regulatory dynamics. Improvement in key financial metrics will be essential for ratings.
For further information on this ratings announcement, please contact on 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

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