Press Release

VIS Reaffirms Entity Rating of Utopia Industries (Private) Limited

Karachi, September 10, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Utopia Industries (Private) Limited (‘UIPL’ or ‘the Company’) at A-/A-2’ (‘Single A Minus /A-Two’). The medium to long-term rating of ‘A-’ signifies good credit quality and adequate protection factors; risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ indicates good likelihood of timely repayment of short term obligations with sound short term liquidity factors. 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 05, 2023.

UIPL is a division of Utopia Group which operates under the ownership and active participation of two Pakistani brothers. UIPL specializes in the manufacturing and export of a diverse range of products such as terry towels, pillows, comforters, mattress toppers, mattress encasements and protectors, bed sheets, cookware, plastic products, and personal care items. The Company is currently diversifying its products offerings into plastic and kitchenware segments. The registered office and all factory units are located on Super Highway, Karachi.

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.

The assigned ratings consider UIPL's topline growth in FY23 and FY24. However, gross margins during the review period continued to decline due to higher raw material and fuel costs. Net margins in FY23 also remained under pressure on account of increased financial expenses from higher borrowings while the same has remained intact in FY24.

The assigned ratings also take into account UIPL’s financial risk profile, wherein liquidity and cashflow coverages remained intact at adequate levels. Debt Service Coverage Ratio (DSCR) of UIPL registered a decline albeit considered sound from the given ratings perspective. Sponsor has injected Rs. 3b in equity during FY23 while debt profile remained volatile with the changes in short term borrowings. Nevertheless, overall capitalization profile posted notable improvement. Going forward, maintaining financial risk profile 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

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 .