Press Release

VIS Maintains Entity Ratings of Masood Textile Mills Limited

Karachi, September 8, 2021: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Masood Textile Mills Limited (MTML) at ‘A-/A-2’ (Single A Minus/A-Two) and instrument rating of ‘A’ (Single A) of the secured and privately placed long-term Islamic certificates (Sukuk). The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. The long-term rating of ‘A’ signifies good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. Outlook on the assigned ratings has been revised from ‘Rating Watch-Negative’ to ‘Stable’. The previous rating action was announced on August 06, 2021.
The ratings assigned to MTML take into account the moderate risk profile of the company underpinned by its presence in the export oriented value-added textile segment, fully integrated production unit giving complete control on quality maintenance coupled with presence of Chinese ownership in the company resulting in provision of synergistic benefits in terms of technical expertise. Moreover, holistically business risk profile of the textile industry is supported by stable and growing demand as US-China Trade disruption enhance sales given major buyers continue to diversify procurement. Ratings reflect the company’s established market position as one of the leading exporters along with long-standing business relationships with leading international brands. Client concentration risk is considered on the higher side as almost three-fifths of the sales revenue is being generated by top-10 clients; however, the same is mitigated by high customer satisfaction and cumbersome supplier switching process. Further, the ongoing rupee devaluation is expected to bode well for the company going forward.

MTML’s performance remained weak during FY20 with sizable loss incurrence leading to equity erosion. However, the assessment of current financial risk profile incorporates the impact of Covid led boom in the export and local textile sector translating into positive momentum in revenues and margins coupled with recovery of profitability and liquidity indicators. The enhancement of margins during the outgoing year was a function of change in product mix strategy with increased focus on fashion articles entailing higher margins in comparison to basic pieces of clothing. Further, owing to reduction in benchmark rates, the financing cost for the company has reduced, reflecting positively on the bottom line. The ratings draw comfort from extension of short-term loan amounting to Rs. 1.5b by the sponsors to fund working capital requirements; the funds are expected to remain vested in the company during the rating horizon. However, the ratings continue to remain sensitive to sizable volatility in operational performance, high leverage indicators and low cash coverages; any adverse movement seen in the aforementioned factors would impact the ratings. Even though concerns of successive waves of Covid-19 remain elevated, VIS expects the order book for the industry to remain strong in the ongoing year, subsiding business risk concerns. The ratings are dependent on maintenance of margins, realization of projected targets, incremental cash flow generation and cost savings from recent capital expenditure and improvement of leverage indicators during the rating horizon.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 or email at info@vis.com.pk .

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Corporate Rating Methodology (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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .