Press Release

VIS Reaffirms Entity Ratings of Rajby Textiles (Private) Limited

Karachi, February 21, 2020: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Rajby Textiles (Private) Limited (RTPL) at ‘A-/A-1’ (Single A Minus/A-One). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 26, 2018.

The assigned ratings incorporate extensive experience of sponsors, moderate business risk profile, improvement in profitability profile, and satisfactory liquidity and capitalization indicators. Management has plans to integrate group operations by setting up a spinning unit but this expansion is currently on hold and timeline for execution of the same is dependent on demand outlook and orders in hand.

Business risk profile of the company is supported by stable and growing demand for denim products. However, entrance of new market players and capacity expansion by existing players both locally and globally are expected to keep margins in check in the long run. Continuous focus on research and development is considered important from growth perspective.

Assessment of the financial risk profile indicates that topline of the company registered growth of 21.5% in FY19 on account of increase in average selling prices. Increase in average selling prices was primarily as a result of currency devaluation and the same facilitated improvement in gross margins. Higher finance costs as a result of increase in utilization of borrowings and incurrence of tax expense due to expiration of tax credit, tempered the increase in net margins. Going forward, the management expects gross margins to remain at existing levels as sales and costs are expected to move in tandem. Net margins may witness slight further decrease due to higher finance costs and taxation expense.

RTPL has an extended working capital cycle with time taken to convert inventory into cash being higher than time required for payment to trade creditors. Days Sales Outstanding (DSO) witnessed further increase due to sizeable receivables due from a related party. However, overall liquidity profile is adequate with sufficient cash flows in relation to outstanding obligations and strong debt servicing ability. Improvement in working capital cycle from related party will augment the liquidity profile. Leverage indicators have trended upwards primarily on account of higher utilization of short term borrowings to fund trade debts. Going forward, ratings will remain dependent on improving leverage indicators while maintaining sound debt servicing ability.

For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or the undersigned (Ext: 207) at (021) 35311861-66 or email at info@vis.com.pk.



Jamal Abbas Zaidi
Advisor

Applicable Rating Criteria: Industrial Corporates (May 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf

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