Press Release

VIS Reaffirms Entity Ratings of Zaman Textile Mills (Pvt.) Limited

Karachi, March 07, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Zaman Textile Mills (Pvt.) Limited (ZTML). Long-term entity rating of ‘A-’ reflects 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 market is good. Risk factors are small. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on March 08, 2022.

Ratings reaffirmation takes into account ZTML’s position as a vertically integrated textile composite, competitive advantage as offering end-to-end solution to retail brands, ongoing initiatives to enhance capacity, timeline revenue growth with improved profitability margins that are outpacing several industry peers, adequate liquidity position and all-out retention supporting growth in equity base. However, debt coverage and leverage metrics have weakened over the review period owing to increase in debt levels. Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, rising interest rates, inflationary pressures, and higher electricity costs pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally.

Under capacity enhancement initiatives, there are plans to add 65K new spindles in the spinning division, of which ~18K have already been installed and remaining will be added by Mar’23, taking the total tally to 144K+ and thereby increasing production capacity by 2x. The project cost is estimated at Rs. 10b, which will be financed using a debt to equity mix of 60:40. In addition, the weaving segment added 160 new looms since last review and further addition of 70 new looms (including replacement of 35 looms) is planned, taking the total loom count to 580. This project is funded with debt to equity ratio of 80:20. Printing and dyeing unit production capacity is being expanded by ~18% with an estimated project cost of Rs. 3b, which will be covered with a debt to equity ratio of 60:40. The unit will also allocate two floors for the stitching unit, capable of housing up to 120 machines, and mainly used for finished fabric exports.

Sales revenue has more than doubled in the past two fiscal years and surpassed Rs. 27b mark in FY22, with a YoY growth of ~37% attributable to increased capacity and higher prices. Two-thirds of the sales revenue come from fabric, while the remainder is contributed by yarn. The fabric division produces two types of products: Cut to Pack, which is a ready-to-stitch cloth, and ROT (tube rolls). Cut to Pack generates nearly two-thirds of the total fabric sales and has higher profit margins than ROT. Domestic sales account for almost all revenue, with substantial growth observed over the years. In contrast, exports have remained relatively stagnant, although management plans to increase their focus on exports. High client concentration is noted with Bonanza being the single largest contributor; nevertheless, comfort is driven from well-established long-term partnerships with leading apparel brands.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 206) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk


Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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