Press Release

VIS Upgrades Ratings of Nadeem Textile Mills Limited

Karachi, March 9, 2020: VIS Credit Rating Company Limited (VIS) has upgraded the entity rating of Nadeem Textile Mills Limited (NTML) to ‘BBB+/A-2’ (Triple B Plus/ A-Two) from ‘BBB/A-2’ (Triple B /A-Two). Long term rating of ‘BBB+’ reflects adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur 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 markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 18, 2018.

Nadeem Textile Mills Limited (NTML) 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 rating derives impetus from long-standing association of the sponsors with the textile industry.

The upgrade in rating takes into account the continuation of double-digit growth in topline and improvement in gross margin. NTML’s topline is derived from three major sources i.e. domestic sales (42%), direct export sales (32%) and indirect export sales (25%), with the latter being the growth driver for FY19. Similar double digit growth has continued in 1H’FY20.

The company’s cash conversion cycle remains commensurate with the sector. We have noted an uptick in trade debts as of Dec’19. However, comfort is derived from comfortable aging profile of trade debts and historical trend of trade debt collection, wherein provisions have remained minimal.

Given higher business volumes, the short-term borrowings have risen, albeit these remain adequately matched with inventory and trade debts. Furthermore, with higher FFO, debt service coverage has improved on a timeline. Sponsor support has also been enhanced on a time line, with interest-free loan from directors & associates having increased by Rs. 191m in the 1½ year period (Dec’18-Jun’19). Resultantly, the gearing and leverage remain commensurate with the rating assigned. The assigned rating remains dependent on maintenance of profitability margins and liquidity & capitalization metrics

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 (April, 2019)

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