Press Release

VIS Reaffirms Entity Ratings of Indigo Textile (Private) Limited

Karachi, April 25, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity rating of Indigo Textile (Private) Limited (ITPL) at ‘A/A-1’ (Single A/ A-One). The long-term rating of ‘A’ signifies good credit quality and adequate protection factors. 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. Risk factors are minor. Outlook on the rating is ‘Stable’. Previous rating action was announced on June 21, 2021.

Assigned ratings encapsulates positive momentum in exports of value-added segment of the textile industry on account of growing export demand led by shift of regional business and export-oriented policies of the government amid pandemic. Prospects of textile industry remains strong going forward, however rising cotton prices remains a key risk detrimentally impacting cost of sales which is partially offset by the exporters’ ability to pass on costs to consumers to an extent. Ratings also draw comfort from the undergoing capacity addition initiatives with installation of 90 looms by end-FY22 to cater to rising demand, coupled with Company’s plan to establish a spinning plant to support higher margins going forward. The spinning project is expected to come online in FY24 and will accommodate 25,000-30,000 spindles for in-house consumption.

Assessment of financial risk profile incorporates positive momentum in topline growth during FY21, recording a sizeable increase on account of volumetric sales growth. Composition of sales mix reflects increasing focus towards direct exports relative to indirect exports on a timeline basis, and the trend is expected to continue going forward as per management. Gross margins witnessed decline in FY21 owing to increase in raw material prices, however operating margins were maintained during the outgoing year. Other income streamlined in FY21; subsequently net margins witnessed improvement. Margin improvement over the rating horizon, however, will remain important in line with the assigned level of ratings. Cash flow coverage indicators also depicted improvement in FY21 on the back of increased profitability and lower finance costs, while debt servicing also remained sound. Liquidity profile of the Company is adequate. Although cash conversion cycle depicted improvement during the outgoing year, the same is on the higher side and may cause liquidity constraints going forward. Further improvement in cash conversion cycle is important for maintenance of assigned short term ratings. Capitalization indicators depict improvement on a timeline basis, however the same are expected to increase going forward as the Company plans to increase utilization of long term debt to finance capex, albeit remaining within manageable levels with realization of projected profitability. Ratings remain dependent upon maintenance of gearing and leverage levels.

For further information on this rating announcement, please contact Ms. Sara Ahmed (Ext: 207) or the undersigned (Ext. 306) at 021-35311861-70 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

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