Press Release

VIS Reaffirms Ratings of Gadoon Textile Mills Limited

Karachi, December 13, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Gadoon Textile Mills Limited (‘GTML’ or ‘the Company’) at ‘A+/A-1’ (Single A Plus/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. The short-term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors while risk factors are minor. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on October 29, 2018.

GTML is part of Yunus Brothers Group (YBG). The company is the largest spinning enterprise in the country and has around three decades of experience in the textile sector. GTML produces yarn (both coarse & fine counts) through two units located at Karachi in Sindh (Unit A) and at Swabi District in Khyber Pakhtunkhwa (Unit B) and knitted fabric through Unit B. The company’s yarn is primarily sold to large scale local textile industry, the key markets being Karachi, Faisalabad and Lahore. GTML also sells products to international market. “Koyal” (local) and “Peach” (export) are two of GTML’s key brands.

During FY19, the Company posted 13% growth in topline revenue largely attributable to better pricing with increased contribution from local sales. However, orders from international markets are expected to grow, mainly owing to prevailing US-China trade row. Gross margins have depicted consistent improvement on the back of improving inventory & fuel efficiencies and better pricing. Nevertheless, despite the notable improvement, margins continue to trail peers in the industry. Although income stream from associates continued to partially support profitability, absence of export rebate and increased interest cost burden have impacted net margin.

Liquidity profile is considered sound in view of healthy cash flow generation, full coverage of short term borrowings - by way of inventory & receivables - and adequate debt servicing ability. Even though Debt Servicing Coverage Ratio (DSCR) has slightly declined as a result of funds mobilized for expansion and diversification projects, it still remains adequate. Debt servicing is expected to remain manageable given adequate cash flow from operations and extended long-term debt repayments.

Stable profitability, along with conservative dividend payout has continued to reinforce capital buffers for the company. With increase in debt levels, primarily to fund inventory procurement and growth based CAPEX for expansion projects, leverage indicators have slightly trended upwards. However it is pertinent to mention that majority (78.8%) of the debt represents short term financing which are fully matched by stock of inventory and trade debts. Given prudent profit retention, leverage indicators are expected to be maintained.

For further information on this rating announcement, please contact Mr. Arsal Ayub (Ext: 214) or the undersigned (Ext: 201) at 35311861-66 or email at info@vis.com.pk.



Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (May 2016)
http://vis.com.pk/docs/Corporate-Methodology-201605.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .