Press Release
VIS Reaffirms Entity Rating of Union Apparel (Private) Limited
Karachi, March 04, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Union Apparel (Private) Limited (‘UAPL’ 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 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 remains Stable. Previous Rating action was announced on January 18, 2023.
Setup in 2016, Union Apparel (Private) Limited (UAPL or ‘the Company’) is a wholly-owned subsidiary of Union Fabrics (Private) Limited (UFPL), engaged in manufacture and sale of fabric to leading brands in the local market. UAPL possesses necessary information technology infrastructure utilizing SAP enterprise resource planning software which provides operational efficiency.
Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors. Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints due to government delays in sales tax refunds. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.
Assigned ratings also consider the Company’s business updates wherein UAPL demonstrated revenue growth owing to a rise in unit prices, though there was a slight contraction in sales volumes in FY23. Subsequently, the gross margin improved, while higher finance cost due to elevated monetary policy rate put pressure on the net margin. During 1QFY24, the net sales and profitability metrics improved further amid commencement of the Company’s operations at a new facility. For the current fiscal year, the management anticipates the surge in sales to continue and margins to come in line with the historical trend.
Assigned ratings take into account the Company’s financial risk profile. Amid debt reduction in FY23, the Company’s capitalization profile showed slight improvement as both gearing and leverage indicators have trended downwards. The liquidity profile of the Company is considered adequate in relation to outstanding obligations. The Funds from Operations (FFO) increased due to a rise in operating profitability. Consequently, the DSCR improved, while the cashflow coverages also trended upwards due to debt repayment. Going forward, the ratings remain sensitive to improvement in profitability metrics and maintenance of capitalization indicators.
For further information on this ratings announcement, please contact Mr. M. Amin Hamdani at 021-35311861-64 (Ext. 217) and/or the undersigned at 021-35311861-64 (Ext. 201) or email at info@vis.com.pk.
Javed Callea
Advisor
Applicable Rating Criteria: 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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