Press Release

VIS Reaffirms Entity Ratings of Al-Karam Towel Industries (Private) Limited

Karachi, May 25, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Al-Karam Towel Industries (Private) Limited (AKTI) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. Long-term entity rating of ‘A-’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ indicates good certainty of timely payment; liquidity factors and company fundamentals are sound. Access to capital markets is good, while risk factors are small. Previous rating action was announced on April 10, 2021.

Ratings are underpinned by recovery in volumes during FY21 as economic activity resumed worldwide post COVID-19. Assigned ratings also incorporate capacity expansion projects, reducing dependence on external procurement of yarn and improving operational efficiencies, and timely servicing to clients. The capital expenditure was financed via concessionary rates financing. Client concentration remains in USA and some European countries, but the company does have plans for the diversification of its clientele by adding new customers in these regions and Gulf countries. Considering this, and additional capacity enhancement plans, revenue base is expected to exhibit persistent uptick going forward.

Earning margins reduced during FY21 due to higher input and freight costs, however depicted recovery in the ongoing year due to inventory gains and higher average selling prices. Going forward, addition of spinning capacity is expected to further improve operational efficiency. However, persistent rise in raw material costs and rising interest rates are likely to keep profitability indicators range bound.

Due to healthy profit generation in absolute terms, cash flow coverage indicators remained at satisfactory levels, despite a rise in the quantum of debt. Although the equity base of the entity has depicted growth over time through profit retention, leverage and gearing ratios have trended upwards on a timeline basis because of the elevated level of borrowings to finance capacity expansion projects. Despite planned addition in long-term debt to finance expansion, capitalization indicators are projected to commensurate with the benchmarks for the assigned ratings.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext: 201) at (021) 35311861-66 or email at info@vis.com.pk




Javed Callea
Advisor


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

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