Press Release

JCR-VIS Upgrades Ratings of Nadeem Textile Mills Limited

Karachi, December 18, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the entity rating of Nadeem Textile Mills Limited (NTML) to ‘BBB/A-2’ (Triple B/A-Two) from ‘BBB-/A-3’ (Triple B Minus/A-Three). The long term rating of ‘BBB’ signifies 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’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on March 12, 2018.

Nadeem Textile Mills Limited (NTML) is part of Nadeem Group. The company is engaged in the manufacturing and sale of yarn business for more than three decades and operates via two spinning units located in Nooriabad and Kotri, Sindh.

The assigned ratings take into account adequate sponsor support, improvement in profitability, capitalization indicators and liquidity profile of the company. Ratings are constrained by high leverage indicators.

Product diversification, currency devaluation and volume growth provided a growing trend in sales in FY18 and Q1’19 vis-à-vis the corresponding periods in the preceding year. Product innovation coupled with currency devaluation resulted in improved gross margins in 2018. Besides the aforementioned factors, utilization of lower priced cotton inventory aided gross margins in Q1’19. Sustainability in margins in the given rating horizon would be an important rating determinant.

Fund from Operations (FFO) is considered adequate to service the debt obligation. Current ratio has improved from the preceding year, on the back of increase in trade debts and stock in trade. Assigned ratings are dependent on maintenance of the liquidity indicators within manageable levels going forward.

Equity base of NTML has depicted an improvement vis-à-vis the preceding year due to retention of profits. Gearing and Leverage ratios have witnessed an increasing trend in FY18 vis-à-vis the preceding year. This was primarily due to an increase in short-term borrowing to meet the working capital requirement needs. Inventory and trade debts sufficiently cover short term borrowings. In Q1’19, gearing and leverage indictors have improved primarily due to lower short term borrowings. Further improvement in leverage indictors is desired going forward.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-70 or fax to 021-35311872.



Javed Callea
Advisor

Applicable Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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