Press Release

VIS Assigns Initial Ratings to Eastern Spinning Mills Limited

Karachi, December 30, 2021: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-1’ (Single A-Minus /A-One) to Eastern Spinning Mills Limited (ESML). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned rating is ‘Stable’.

ESML is an export-oriented spinning unit which manufactures a range of cotton yarn. ESML is a part of Eastern Group, a conglomerate having business interests in leather, textile, and dairy industries. Shareholding of the company is vested with the sponsoring family through a holding company named Zakia Textile Mills (Pvt.) Limited. The assigned ratings take into account moderate business risk profile of the company which is supported by extensive industry experience of sponsors and established relationships with the customers. The company has shifted towards higher counts (up to 30) and value added Slub yarns for knitting besides count of 10/s - 20/s over the past two years. Baring FY20, the company has depicted sustained increase in revenue and profits generation over the review period. Revenue mix is dominated by exports, with China, Central America, and Turkey being the primary target markets. While there is room for improvement, margins profile of the company is considered largely in line with the peers. However, the ratings are constrained by vulnerability of the spinning sector to availability and prices of raw materials, exchange rate risk, and adverse changes in regulatory duties structure.

Liquidity is supported by internal capital generation. In line with the profits, the company generated higher funds from operations during FY21, which led to notable improvement in the company’s capacity to meet its debt obligations. Increase in current ratio was led by a combination of higher trade receivables and some decline in trade payables and short-term borrowings by end-FY21. The net working capital cycle of the company is considered satisfactory and in line with the peers despite some stretch due to increase in trade receivables. The ratings draw comfort from low gearing and leverage indicators. The company is in the final planning stages of setting up a new spinning unit and civil work on the project is expected to start in January’2022. The project will be funded through a mix of sponsor equity and the SBP’s LTFF Facility for a tenor of 10 years. Despite mobilization of said long-term loan, leverage indicators are expected to remain manageable over the ratings horizon. Going forward, the ratings are dependent on timely execution of expansion project and maintenance of sound coverages and prudent leverage indicators.

For further information on this rating announcement, please contact Syed Fahim Haider at 042-35723411-13 (Ext: 8006) or the undersigned at 021-35311861-70 (Ext. 201) or email at info@vis.com.pk







Faryal Faheem Ahmed
Deputy CEO

VIS Entity 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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .