Press Release

VIS Reaffirms Entity Rating of Shahtaj Textile Limited

Karachi, November 13, 2024: VIS Credit Rating Company Limited (VIS) reaffirms the entity ratings of Shahtaj Textile Limited at ‘A-/A2’ (Single A Minus/A Two). Long-term entity rating of ‘A-’ reflects good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A2’ indicates good likelihood of timely repayment of short-term obligations with short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 24, 2023.

Shahtaj Textile Limited (“STL” or “the Company”) is a Shahnawaz Group Company. It was incorporated as a public limited company in January 1990, with the sole purpose of manufacturing and marketing of greige fabric (pronounced "grey" fabric). The mill started commercial production in January 1992 and is listed at Pakistan Stock Exchange.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors. Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints due to lengthy process of sales tax refunds. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

STL’s assigned ratings are underpinned by over three decade long operational history, strong sponsor support and limited reliance on imported yarn. However, the Company’s exclusive focus on the weaving segment and absence of growth strategy remained a rating constraint. During FY24, net sales remained intact while the gross margins recovered, though remaining lower than historical average, except for FY23. Net margin remained under pressure amid high finance cost in FY24. Going forward, Management expects gross margins to improve with further recovery in sales volumes and cost saving from upcoming 1MW solar power plant. Also, the expected decrease in finance cost under the declining interest rates environment will support the overall profitability of the Company.

Ratings also incorporate the financial risk profile of STL reflected in declining cashflow and debt coverages during the review period, albeit remaining at adequate levels. Liquidity profile stayed at satisfactory levels with cash conversion cycle falling in line with the industry averages. Capitalization indicators remained intact at manageable levels. Going forward, maintenance of cashflow coverages and capitalization profile along with further recovery in margins will remain important for the assigned ratings.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.


Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

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

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .