Press Release

VIS Reaffirms Entity Rating of Indigo Textile (Private) Limited

Karachi, July 19, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Indigo Textile (Private) Limited (‘ITPL’ or ‘the Company’) at A/A-1’ (‘Single A /A-One’). Medium to long-term rating of ‘A’ reflects 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 protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. Previous Rating action was announced on May 24, 2023.

ITPL is a joint-venture between Akhtar Group and Haji Khuda Bux Amir Umar Group, specializing in denim production and export for over two decades, with operations including rope-dyeing, weaving, and finishing.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors. Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints due to lengthy process of sales tax refunds. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

Assigned ratings consider ITPL’s business updates wherein FY23 topline growth was driven by rupee depreciation, while higher volumes and price supported sales growth in 9M'FY24. Export sales continued to rise, while client concentration also increased during the review period. Gross margins improved in FY23 but normalized to historical trend in 9M'FY24. Major operating expenses rose with inflation, while finance cost posted notable increase both in FY23 & 9MFY24. Net margins improved in FY23 but declined in 9MFY24.

The assigned ratings also take into account ITPL’s improved financial risk profile, with notable cash flow and debt coverage improvements in FY23 due to higher profitability. Liquidity indicators, including the current ratio and short-term debt coverage, also improved. Gearing and leverage indicators benefited from lower debt utilization and a growing equity base. ITPL does not intend to mobilize new long-term debt during the rating horizon. Maintaining financial risk profile will remain important from the ratings perspective.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.


Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .