Press Release

JCR-VIS Reaffirms Entity Ratings for Shahtaj Textile Limited

Karachi, January 18, 2019: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings of Shahtaj Textile Limited (STL) at ‘A-/A-2’ (Single A Minus/A-Two). The long term rating of ‘A-’ signifies good credit quality with strong protection factors. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are considered sound with good access to capital markets. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 14, 2017.

The assigned ratings take into account strong sponsorship profile of ‘Shahnawaz Group’; the group comprises six companies including Shahtaj Textile Limited (STL). Other group entities belong to food and engineering related sectors. STL is primarily engaged in the manufacturing, selling and marketing of grey fabric.

Top line of the company witnessed a significant growth in the outgoing year. As per the management, increase in sales compared to preceding year was a combination of higher procurement of orders in both local and international market and some increase in average selling prices. However, on account of rising fuel power prices and volatility in yarn prices, competitive pressures on margins coupled with an increase in finance cost resulted in reduced bottom-line of the company. Going forward, management expects margins to improve on the back of reduction in gas prices by the government. Developments in this regard are yet to materialize. Maintaining performance indicators is considered important from a ratings’ perspective.

On a timelines basis, capitalization levels of the company have improved on the back of profit retention. Nonetheless, leverage indicators deteriorated with higher borrowings utilized for meeting working capital requirement needs and funding BMR activities. Going forward, management expects nominal expenditure for capex requirements in the rating horizon which is expected to support the liquidity and debt service profile of the company. Improvement in capitalization indicators will remain a key rating driver, going forward.

Funds from Operations (FFO) levels of the company are considered sufficient to meet the outstanding debt obligations as indicated by sizeable debt servicing coverage ratio. Current ratio, despite a dip in FY18 with higher current liabilities, has remained at sufficient levels above 1.0x. Inventory and trade debts also provide adequate coverage for short-term borrowings.

For further information on this rating announcement, please contact Mr. Jamal Abbas Zaidi (Ext: 207) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.


Javed Callea
Advisor

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

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