Press Release

VIS Upgrades Entity Rating of Bismillah Textiles Limited

Karachi, October 28, 2024: VIS Credit Rating Company Ltd. (VIS) has upgraded the entity ratings of Bismillah Textiles Limited (BTL) to ‘A-/A-2’ (Single A-Minus/A-Two) from ‘BBB+/A-2’ (Tripple B Plus/A-Two). Medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes Good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on August 22, 2023.

Bismillah Textiles Limited (BTL) is a family-owned business with over 30 years of experience in exporting value-added fabrics and home textiles. The Company operates across various segments, including yarn dyeing, weaving, processing, and stitching, employing over 1,600 workers. BTL’s production facilities are certified to the international standards and the product quality is ensured through has an in-house quality control department. The Company meets its energy needs through a combination of the national grid, coal, and gas-powered generators.

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 inconsistencies in domestic fiscal policies and procedures. Supply-side risks, including fluctuation in local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

Assigned ratings consider BTL's business updates during FY23 and FY24, notably a slowdown in global demand adversely impacted export volumes, leading to decline in overall sales. Despite this challenge, local sales continued to grow by ~24.9% in FY23 and 18.5% in FY24 providing a valuable cushion as the Company works to expand its export markets. Client concentration risk persists, with the top ten clients contributing nearly three-fourths of the total sales, despite diversified geographical exposure. Gross margins improved to an all-time high of 12.9% in FY23, primarily driven by the depreciation of the rupee, though moderated to 10.2% in FY24 in the absence of currency gains. Enhanced operational efficiencies from BMR initiatives further supported margins during this period. With a strong order book in hand, the Company expects sales revenue to increase by ~15% in FY25 along with improvements in gross and net margins to 10.9% and 2.8%, respectively.

The assigned ratings also factor in BTL's financial risk profile. In FY23, FFO improved due to higher profitability, increasing to PKR 700 million, and debt coverage metrics strengthened, evidenced by an improvement in FFO to total debt ratio to 0.44x and DSCR to 1.99x. Liquidity indicators remained adequate, with the current ratio improving to 1.42x in FY23. Gearing and leverage ratios also improved to 0.37x and 1.15x, respectively due to reduced debt levels and an increased equity base from profit retention. In FY24, FFO declined due to reduced profitability, though liquidity indicators remained adequate, with the current ratio further improving to 1.58x. The capitalization profile continued to strengthen with further reductions in debt and growth in equity, resulting in gearing and leverage ratios improving to 0.33x and 0.94x, respectively in FY24. Though the cashflows and coverage metrics are expected to improve further in FY25, maintaining a strong financial risk profile will remain important from the 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

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 .