Press Release

VIS Reaffirms Entity Rating of Kamal Textile Mills (Pvt.) Limited

Karachi, July 03, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Kamal Textile Mills (Private) Limited (‘KTML’ 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 rating is ‘Stable’. Previous rating action was announced on June 20, 2023.

Kamal Textile Mills (Pvt.) Limited (KTML or ‘the Company’) is a family-owned company within the Kamal Group, with more than 13 years of experience in exporting home textile made-ups, garments, and processed fabrics.

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 lengthy process of 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 consider the Company’s business updates wherein KTML’s revenue in FY23 declined due to lower volumetric sales despite higher selling prices. While gross margins showed improvement, net margins were affected by increased finance costs. During 9M’FY24, net sales saw an uptick, driven by a partial recovery in demand. However, gross margins faced downward pressure. Despite rising operating expenses and finance cost, net margins registered improvement.

The assigned ratings also consider the Company’s financial risk profile, which showed fluctuations in cash flow and debt coverage indicators. The Debt Service Coverage Ratio (DSCR) declined during the review period but remained at an adequate level. The current ratio showed a slight improvement. Gearing and leverage indicators also improved due to an increase in the equity base, which outpaced the growth in overall debt levels. Going forward, profitability and capitalization indicators will remain important from ratings perspective.

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

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