Press Release

VIS Upgrades Entity Ratings of Arshad Textile Mills Limited

Karachi, August 29, 2022: VIS Credit Rating Company Limited (VIS) has revised the entity ratings assigned to Arshad Textile Mills Limited (ATM) from ‘BB+/A-3’ (Double B/A-Three) to ‘BBB-/A-2’ (Triple B Minus/A-Two). Outlook on the rating has been revised from ‘Positive’ to ‘Stable’. 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 is ‘Stable’. Previous rating action was announced on August 27, 2021.

ATML is principally involved in the manufacturing and sale of cotton-blended yarn. ATML is a part of Arshad Group and shareholding is largely vested with the sponsoring family, who are actively involved in the day-to-day operations of the company. The company has recently executed capacity enhancement plan entailing addition of nine ring frames and 720 rotors, which are expected to become fully operational by end-1QFY23. Around two-third of the required capital expenditure has been funded through subsidized bank borrowings while the rest has been arranged through own sources.

The ratings incorporate sound growth in revenues and profitability during FY22. The liquidity position is underpinned by maintenance of adequate debt service coverage on a timeline basis. Net operating cycle has remained fairly manageable relative to industry amid working capital support from associated company and advances from customers. Leverage indicators have remained on a higher side due to overall increase in debt levels despite equity expansion. Meanwhile, capitalization is supported by profit retention and continued sponsors support in the form of interest free loan, which is payable at discretion of the company. Moreover, the sponsors have decided to inject further equity via right shares issuance during the ongoing year. Going forward, the growth in topline is projected to be primarily driven by enhanced capacity. Whilst the ratings factor in high cyclicality and competitive intensity for spinning industry along with volatility in cotton prices, overall business risk profile of the textile industry is supported by stable demand and favorable regulatory regime. However, ongoing economic uncertainties in the domestic and international markets may impact growth in the textile segment. The ratings, therefore, will remain dependent on achieving projected growth in revenues and profitability while improving leverage indicators and liquidity profile, going forward.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at info@vis.com.pk


Faryal Ahmad Faheem
Deputy CEO


VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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