Press Release

VIS Assigns Initial Ratings to Magna Textile Industries (Pvt.) Limited

Karachi, March 15, 2023: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to Magna Textile Industries (Pvt.) Limited (MTIL). The medium to long-term rating of ‘BBB’ denotes adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
MTIL is involved in production and sale of processed fabric used for home textile made-ups along with providing printing, dyeing and other processing services to local textile mills. Shareholding of the company is vested with family members who have extensive experience in the textile industry. The company has four rotary printing machines and other processing facilities while the company has recently diversified its operations by adding 132 Airjet looms for backward integration. The weaving unit has started commercial operation in Dec’22.

During FY22, topline exhibited sizeable growth on account of increase in volumetric sales and average selling prices driven by covid led boom in textile industry of Pakistan. Around 50% of the revenue emanated from export sales comprising processed fabric. Gross profit margins improved on the back of inventory gains and favorable product prices. Despite increase in operating costs, net margins improved slightly largely owing to lower effective tax rate. Liquidity profile is underpinned by adequate working capital management; however, cash flow coverages came under pressure due to augmentation in debt levels in FY22 and the ongoing year. The company obtained long-term financing to fund capital expenditure, which also led to increase in its leverage indicators.

The ratings take into account drop in turnover reported in 1HY23 owing to demand compression led by slowdown in global markets; meanwhile, gross margins improved as rupee depreciation continued to support the export-oriented textile industry in terms of pricing. Realization of projected incremental cash flows from augmentation in topline backed by expansion in operations seem quite challenging amidst weakening of overall macroeconomic indicators, and overall bleak outlook of textile sector in short to medium-term. The ratings will remain dependent on achieving projected growth in sales and profitability along with maintaining liquidity and capitalization indicators at adequate levels.
For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8005) and/or the undersigned at 021-35311861-4 (Ext. 207) or email at info@vis.com.pk.

Sara Ahmed
Director

VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .