Press Release

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

Karachi, July 4, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Sapphire Textile Mills Limited (STML) at ‘A+/A-1’ (Single A Plus/A-One). Outlook on the assigned rating is ‘Stable’. 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 June 21, 2021.

Assigned ratings take note of overall improvement in the Company’s earning profile on the back of higher volumetric sales and increase in average selling price during FY21 and the ongoing fiscal year. The Company’s topline registered significant growth on the back of higher demand for textile products in the industry while margins subsequently improved on the back of inventory gains, exchange rate gains and overall capacity enhancement during FY21 and the ongoing year. The Company’s topline was also supported by installation of additional capacities in the spinning segment, expansion continued with focus on enhancing the finishing capacities whereby planned additions of capacities will be fully online by FY23. Going forward, the Company’s focus remains on value addition and increasing proportion of finished segment in the sales mix. Current ratings also reflect STML’s sizeable investment portfolio which continues to support the bottom-line through healthy dividend income on timeline basis.

Assessment of financial profile indicates improvement in liquidity indicators since the preceding year. Fund Flow from Operations (FFO) increased on the back of higher profitability and dividend income during FY21 while the company’s Debt Service Coverage Ratio (DSCR) also improved. However, due to greater reliance on short-term borrowings to fund capex requirements, liquidity may come under pressure in the short term. Moreover, higher working capital requirements led by higher volatility in commodity prices coupled with inflationary pressures may pose challenges for short-term liquidity management.. Capitalization indicators increased but are expected to remain manageable on the back of strong equity base and continued profitability momentum. Going forward, ratings will remain constrained on sustainable revenues and margins, stable capitalization indicators, strong liquidity position, favorable cotton crop prospects and volatility in commodity prices effecting the long-term demand for cotton and textile products in the industry.

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

Sara Ahmed
Director

Applicable Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .