Press Release

VIS Reaffirms Entity Rating of M.K Sons (Private) Limited

Karachi, June 14, 2024: VIS Credit Rating Company Limited (VIS) reaffirms the entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) for M.K Sons (Private) limited. Long-term entity rating of ‘A-’ reflects good credit quality, and adequate protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ indicates good certainty of timely payment, with sound liquidity factors. Access to capital market is good and risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on May 29, 2023.

M.K. Sons (Private Limited (“MKSL” or “the Company”) was incorporated on June 02, 1985 as a private limited company under the Companies Ordinance, 1984. The Company’s core line of business includes manufacturing and sales of value added fabrics, home textile products and denim garments. The production facilities of the Company includes: Weaving, Bleaching, Dyeing, Washing, Printing, and Stitching.

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 time involved in sales tax refunds. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to exchange rate risk.

Assigned ratings take into account the Company’s business updates, whereby sales decreased marginally in FY23 due to reduced demand. However, the Company managed to improve its gross margins in FY23 attributed to efficiency gains in fuel and power management. Nonetheless, the Company's net margins slightly decreased due to higher finance costs in FY23. Notably, the Company maintains a low client concentration in its sales portfolio, as it does not engage in long-term contracts to minimize risks from economic fluctuations. In the 10M’FY24 period, the Company maintained consistent gross margins compared to fiscal year 2023. However, there was a slight decrease in net profit margins due to elevated finance costs. Looking ahead, the Company anticipates an improvement in margins, driven by the expected decline in interest rates.

The assigned ratings also account for the Company's financial risk profile. The Company showcases a satisfactory liquidity profile and Debt Service Coverage ratio. As of Jun’23, the Company's equity increased due to strong profit retention, while total borrowing decreased, leading to an enhanced gearing position. As of Apr'24, there has been a slight deterioration in the Company’s debt coverage metrics, with a slight dip in DSCR reaching 1.4x and a decline in FFO to debt coverage metrics. Upholding of DSCR will remain important from a ratings perspective. The Company maintained a satisfactory current ratio as of Apr'24.

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


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

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 .