Press Release

VIS Reaffirms Entity Rating of Union Fabrics (Private) Limited

Karachi, January 18, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity rating of ‘A-/A2’ (Single A Minus/A-Two) assigned to Union Fabrics (Private) Limited (UFPL). Long Term 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 ‘A-2’ signifies good certainty of timely payment, liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on December 07, 2021.

UFPL currently operates in the home textiles, processing and value added business lines in addition to weaving. Capacity utilization levels of sizing, weaving, stitching and processing segments continued to report on the higher side during the outgoing fiscal year. Overall corporate governance framework depicts room for improvement given status of a private limited company.

Assigned rating incorporates medium to moderate business risk profile of the Company. Textile exports has been on the increasing trend after the Covid-19 pandemic shocks wherein Pakistan’s export growth came in at 14% and 27% in FY21 and FY22. Lately, the recessionary trend in Pakistan’s major export textile export markets, mainly North America and EU, has started to materialize in Pakistan’s MoM export proceeds, with receipts for October 2022 (at USD 1.36b) being lower by 11% and 15% vis-à-vis preceding month and corresponding period last year respectively. Given expected industrial gas price hike and prevailing recession in major export markets, industry textile export proceeds are expected to fall by ~10% in FY23. Furthermore, profitability margins of textile operators, particularly spinners, weavers and dying companies, are expected to remain under pressure given higher input and financial costs.

Assessment of financial risk profile incorporates growth in topline mainly stemmed from increase in prices due to rupee depreciation, however, the gross margin registered a slight drop. Going forward, given the export market depicting a recessionary trend, volumetric offtake are forecasted to stay under pressure while the management is expecting the sales number to stay intact due to increase in effective prices. Management is expecting margins to improve during the rating horizon with the change in product mix of the Company. Liquidity profile of the Company is considered adequate in relation to outstanding obligations. However, cash flow coverages have come under stress in FY22 and 1QFY’23 on the back of lower profitability reported in these periods coupled with elevated debt levels. Capitalization indicators elevated on the back of increase in total borrowings. Ratings remain sensitive to improvement in profitability metrics and maintenance of capitalization indicators in line with the assigned rating benchmark.

For further information on this rating announcement, please contact Mr. Amin Hamdani (Ext: 217) or the undersigned (Ext: 207) at (021) 35311861-66 or email at info@vis.com.pk.





Sara Ahmed
Director

Applicable Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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