Press Release

VIS Reaffirms Entity Ratings of Kamal Limited

Karachi, April 07, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Kamal Limited (KL) at ‘A/A-1’ (Single A/A-One). Medium to long-term rating of ‘A’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-1’ indicates high certainty of timely payment, liquidity factors are excellent and supported by good fundamental factors. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on April 28, 2022.

Assigned ratings continue to factor in the company’s presence in export-oriented and value-added textile segment, sound sponsor experience, established operating track record, and diverse product portfolio and client base. Ratings reaffirmation take note of consistent sales growth and adequate profitability with all-out retention, leading to strengthening of capitalization buffers over time. Debt service coverages remain sound and further supported by healthy investments in TDRs and bank deposits. However, leverage ratios are elevated and margins are under pressure in the current fiscal year due to upward trend in debt levels and benchmark rates. Going forward, sustainability of revenues and improvement in margins and leverage indicators is considered important for ratings. Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, high interest rate situation, inflationary pressures, higher electricity costs and demand slow down pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally. Strong export sales and management concerted effort on reducing the reliance on imported cotton is viewed positively.

As part of capacity enhancement initiatives, the company has boosted spinning segment capacity by ~86% with new 9,792 spindles and 6,000 routers. Though over 25K additional spindles were planned for the year, supply issues caused delays, pushing the expected delivery to Dec'23 while installation is expected to be completed by the end of next fiscal year. The project aims to meet ~65% of raw material requirements for the product line, from yarn to finished fabric. Additionally, a new knitting segment has been introduced, while capacities in other segments remain unchanged.

Sale revenues have exhibited a sizeable double-digit annual growth rate for five consecutive years, with YoY increase of ~29% primarily fueled by rupee depreciation in exports, while local sales were driven by increased yarn/grey cloth capacities and higher prices. However, sales growth has remained sluggish in the current fiscal year as impacted by global slowdown. On average, proportionate share of exports to local sales has remained relatively stable at 70:30, with two-thirds of local sales being indirect exports. Export sales mix exhibit fabric, home-textile, garment and yarn while local sales entail yarn, greige cloth and retail brand.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 206) or the undersigned (Ext: 207) at (021) 35311861-4 or email at info@vis.com.pk



Sara Ahmed
Director

Applicable Rating Criteria: Industrial 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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .