Press Release

VIS Maintains Entity Ratings of Zephyr Textile Limited

Karachi, June 30, 2021: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Zephyr Textile Limited (ZTL) at ‘BBB+/A-2’ (Triple B-Plus/A-Two). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings has been revised from ‘Rating Watch-Negative’ to ‘Positive’. The previous rating action was announced on April 23, 2020.

The ratings assigned to ZTL take into account its moderate business risk profile emanating from a fairly diversified revenue stream, both in terms of product profile and geographical footprint, coupled with presence in export-oriented value added segment. Moreover, holistically business risk profile of the textile industry is supported by stable and growing demand as US-China Trade disruption enhance sales given major buyers continue to diversify procurement. Client concentration risk is considered on the higher side as almost two-thirds of the sales revenue is being generated by top-10 clients; however, the same is mitigated by high customer satisfaction and cumbersome supplier switching process.

Ratings also incorporate sound financial risk manifested by enhancement of margins, positive momentum in profitability, adequate liquidity and comfortable debt service coverages. Further, owing to reduction in benchmark rates, the financial cost for the company has reduced, reflecting positively on the bottom line. Given improvement in the company’s operational performance owing to pandemic led boom in textile sector during the period under review, the outlook assigned to ZTL’s ratings has been revised to ‘Positive’. Even though concerns of successive waves of Covid-19 are present, strong order book of the industry in the ongoing year along with vaccine rollout has largely subsided business risk concerns. However, the ratings remain sensitive to relatively high leverage indicators. Going forward, the ratings are dependent on maintenance of gearing, sustenance of long-standing relations with customers, realization of projected targets and incremental cash flow generation from new product line extension coupled with evolution of sector dynamics post ongoing pandemic.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 or email at info@vis.com.pk .



Javed Callea
Advisor

Applicable rating criterion: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx

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