Press Release

VIS Maintains Entity Ratings of Shahtaj Textile Limited

Karachi, April 23, 2020: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Shahtaj Textile Limited (STL) at ‘A-/A-2’ (Single A Minus/A-Two). The assigned ratings have been placed on ‘Rating Watch-Developing’ status. 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. Previous rating action was announced on December 26, 2019.

The assigned ratings draw comfort from 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. Net sales of STL witnessed a growth of 22.0% during the outgoing year. Increase in sales was achieved on the back of higher average selling prices while aggregate volumes were stagnant. Client concentration in sales has increased and stands on the higher side; this risk is partially mitigated by long term relationship with clients. With lower energy costs and rupee devaluation, gross margins increased during period under review. Although equity base has increased on the back of profit retention, leverage indicators have remained on the higher side during period under review. Limited debt drawdown is expected to support 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 has remained at sufficient levels above 1.0x. Inventory and trade debts also provide adequate coverage for short-term borrowings.

The revision in rating outlook reflects prevailing uncertainty in textile sector dynamics due to coronavirus outbreak, prolonged lockdown, overall contraction in demand and challenging economic environment. It is expected that the entire value chain of the textile industry will be impacted by these developments. Status of the assigned rating is therefore uncertain as an event of deviation from expected trend has occurred; additional information will be necessary to take any further rating action, warranting a ‘Rating Watch-Developing’ status. Given the capital structure and financial profile, it is expected that ratings will remain stable post recovery of the ongoing situation; nevertheless as scenario is evolving rapidly, VIS will closely monitor and will accordingly take action to resolve the outlook status.

For further information on this rating announcement, please contact Mr. Muhammad Ibad Desmukh (Ext: 205) or the undersigned (Ext: 306) at (021) 35311861-66 or email at info@vis.com.pk.


Faryal Ahmad Faheem
Deputy CEO

Applicable Criteria: Industrial Corporates (May 2019)
http://vis.com.pk/kc-meth.aspx

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