Press Release

VIS Maintains Entity Ratings of Cotton Web Limited

Karachi, January 1, 2024: VIS maintains entity ratings of ‘A-/A-2' (Single A Minus/A-Two) to Cotton Web Limited (‘CWL’ or ‘the Company’). 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 low. Outlook on the assigned ratings has been revised from 'Stable' to 'Positive'. Previous Rating action was announced on October 11, 2022.

CWL, a public unlisted entity based in Lahore, Pakistan, specializes in manufacturing and export of denim garments. Led by CEO Mr. Waseem Akhtar Khan, with over 22 years of experience, the company navigates a challenging industry landscape marked by macroeconomic instability, high-interest rates, and raw material cost pressures. Despite a global demand slump, the textile sector, contributing significantly to Pakistan's GDP and exports, saw a rise in high-value-added exports in FY23.

The Company has demonstrated resilience with three consecutive years of double-digit top-line growth, reaching Rs. 17.0b in FY23, a 27.5% year-on-year increase primarily due to the devaluation of the Pakistani Rupee. The management expects topline to surpass Rs. 20b in FY24. The Company's revenue is significantly reliant on exports, with major markets in the US, France, Spain, and the Netherlands, and a high client concentration risk with the top 10 clients accounting for approximately 95.5% of total sales. Gross margins have improved in FY23, benefiting from the currency devaluation, but net margins have decreased due to increased finance costs from higher interest rates and debt levels. The Company's financial position is characterized by steady Funds Flow from Operations (FFO), which remained at Rs. 1.16b in FY23, and a satisfactory liquidity profile with a current ratio consistently over 1.2x. However, increased debt levels have impacted the cash flow and debt servicing coverage indicators in FY23. The Company's leverage ratios have escalated, surpassing those of industry peers, with rise in debt levels, both gearing and leverage ratios experiencing a slight increase in FY23.

The rating takes into account the strong operating performance and improving financial indicators, amidst challenging market dynamics evident from the consistent increase in sales, improved gross margin and liquidity satisfactory debt service coverage ratio. Operating within the denim garments segment, the Company exhibits a comparatively lower level of business risk compared to other textile exporters. Going forward, upholding the upward trajectory of topline growth while simultaneously sustaining profit margins and effectively managing debt levels will remain important for rating.

For further information on this rating announcement, please contact Mr. M. Amin Hamdani (Ext: 217) or the undersigned (Ext: 208) at (021) 35311861-4 or email at info@vis.com.pk.




Syed Asif Ali
Executive Director

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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