Press Release

VIS Revises Entity Ratings of Sitara Textile Industries Limited

Karachi, October 01, 2024: VIS Credit Rating Company Limited has revised the entity ratings of Sitara Textile Industries Limited (‘STIL’ or the ‘Company’) from ‘BBB+/A-2’ (Triple B Plus/A-Two) to ‘BB+/A-3’ (Double B Plus/A-Three). The medium to long-term rating of ‘BB+’ denotes obligations deemed likely to be met. Protection factors are capable of weakening if changes occur in the economy. Overall quality may move up or down frequently within this category. The short-term rating of ‘A-3’ denotes fair likelihood of timely repayment of short-term debt obligations with satisfactory liquidity factors. Outlook on the assigned ratings has been revised from ‘Negative’ to ‘Rating Watch - Negative’. Previous rating action announced on February 1, 2024.

STIL, with over thirty years of experience, specializes in processing and exporting home textiles, operating under the Mian Anees Group after the division of the prominent Sitara Group. The Company is family-owned, featuring a four-member board with a female director and an organizational structure that encompasses processing, marketing, and a finance department overseen by the CEO. Assigned ratings incorporate elevated business risk due to a weak macroeconomic environment, high-interest rates, inflationary pressures, rising raw material costs, the ongoing energy crisis in the country, and a global slump in demand.

Sitara Textile Company Limited's primary processing plant has been shut down, significantly impacting its operations. Currently, only 100 out of 300 stitching machines remain operational. The Company, primarily engaged in the processing of home textiles, is facing a financial strain, with a total debt of Rs. 1.6b, which includes both short- and long-term obligations. This is an improvement from Rs. 2.0b reported in the FY23 management accounts. The sponsors plan to address the debt by swapping it with land from personal assets and liquidating the Company’s existing assets. Although some financial obligations are overdue, they remain within the 90-day period. The sponsors have expressed plans to restart operations with a smaller composite textile unit at a new location.

Topline has been on a decreasing trend during FY23 and 9MFY24 primarily due to lower demand orders and reduced operational activity. Although gross margins have improved in FY23 & 9MFY24 (management accounts), net margins remain narrow due to elevated operational and financial costs. Cash flow coverage indicators show room for improvement, and the working capital cycle has become longer. Going forward, timely repayments of outstanding debt, sponsor commitment and commencement of new textile unit, will remain an important rating triggers.


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

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