Press Release

VIS Reaffirms Entity Ratings of Shahtaj Textile Limited

Karachi, November 24, 2023: VIS Credit Rating Company reaffirms Entity Ratings of Shahtaj Textile Limited to 'A-/A-2' (Single A Minus/A-Two). Medium to long term rating of 'A-' indicates 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 markets is good. Risk factors are small. Outlook on the assigned ratings remains Stable. Previous rating action was announced on November 23, 2022.

Shahtaj Textile Limited (STL), is a public listed company headquartered in Karachi. The company specializes in production of grey fabric. Employing over 480 employees, STL operates a manufacturing unit in Kasur. Energy requirement is met by gas generators, a diesel backup, and grid supply by WAPDA, and plans to integrate a 1MW solar plant to contribute to their environmental initiatives. Business risk environment of the local textile sector remains elevated amid weak macro-economic environment, high interest rates, inflationary pressures, rising raw material cost, on-going energy crisis and a global slump in demand. Resultantly, Pakistan’s textile exports witnessed a 10% Y/Y decline to USD 16.7b (FY22: 18.5b).

STL’s assigned ratings are supported by over three decade long operational history, strong sponsor support and a limited reliance on imported yarn. Ratings also take note of elevated client concentration risk and a subdued sales growth during the review period. Ratings factor in revenue growth of ~9% in FY23 primarily due to increased volumes, surpassing the Rs. 8b mark. However, in 1Q’FY24 a 16% Y/Y decrease is observed in net sales. Top ten clients make up approximately 80% of the entire revenue, indicating a significant concentration risk. In addition, ratings take account of weakening of cash flow coverage metrics, with DSCR decreasing on a timeline basis. The company maintains stable gearing and leverage ratios, although the planned installation of a solar power plant could introduce new long-term debt, potentially affecting capitalization. Going forward, ratings are dependent on improving cash flow coverage metrics and maintaining capitalization.

For further information on this rating announcement, please contact Mr. Amin Hamdani (Ext: 217) or the undersigned (Ext. 207) at 021-35311861-70 or email at info@vis.com.pk.




Sara Ahmed
Director

Applicable Rating Criteria: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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