Press Release

VIS Credit Rating Company Maintains Entity Ratings of Sapphire Textile Mills Limited

Karachi, June 21, 2021: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of Sapphire Textile Mills Limited (STML) at ‘A+/A-1’ (Single A Plus/A-One). The assigned ratings have been placed on ‘Stable’ outlook from ‘Rating Watch-Developing’ status. Long Term Rating of ‘A+’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and risk factors are minor. The previous rating action was announced on April 22, 2020.

Revision in rating outlook derives impetus from the recovery in the textile industry on the back of increasing local demand and export orders; supported by Government of Pakistan’s (GoP) incentives to players through subsidized utility tariffs, low interest rates, and sales tax refund. Going forward, while most of the textile players indicate a strong order book; sustainability of the same post re-opening of export markets and outcome of vaccination drive in the country remains to be seen.

Ratings also draw comfort from the company’s diversified investment portfolio comprising of investments in subsidiaries, associates, and blue-chip companies. The company has also agreed to form a joint venture with longtime customer Carrington Textile in the United Kingdom which is expected to boost dyed fabric sales going forward. Furthermore, STML is undergoing capital expenditure involving modernization programs in the spinning, weaving, and finishing departments; thus leading to operational efficiencies and capacity enhancements.

Revenues were sustained during FY20 despite the pandemic which remained a crucial rating driver for the assigned ratings; with primary revenue generators being yarn and fabric sales. Home textile segment remained under pressure as demand from hospitality sector declined. Gross margins were impacted due to pricing pressures in the market. Net margins also remained under pressure on the back of lower other income and financial charges. However, net margins are tracking back to historical levels evident through 9M’FY21 results. Increasing return on investments will be an important factor going forward.

Cash flow coverage indicators declined during pandemic due to lower profitability and dividend income. Increase in debt utilization also factored to suppress the indicators; however recovery is seen during 9M’FY21 upon improving profitability. Liquidity profile of the company continues to remains sound upon supporting sizeable liquid investments adequately covering outstanding debt. Capitalization indicators increased minimally upon increase in debt utilization; however debt servicing remains on the lower side vis-à-vis peers and will remain important for ratings in the future. Going forward, capitalization indicators are expected to remain elevated for financing capex; however expected profitability provides comfort.

For further information on this rating announcement, please contact Ms. Sara Ahmed (Ext: 207) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk mailto:info@vis.com.pk.



Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .