Press Release

VIS Reaffirms Entity Ratings of Gadoon Textile Mills Limited

Karachi, November 30th, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Gadoon Textile Mills Limited (GTML) at ‘A+/A-1’ (Single A Plus/A-One). 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-1’ indicates high certainty of timely payment, liquidity factors are excellent and supported by good fundamental factors. Outlook on the rating has been assigned as ‘Stable’. Previous rating action was announced on November 13, 2020.

Assigned ratings favorably factor in GTML’s extensive experience in the spinning industry, mega scale operations with continuous focus on efficiency enhancements and strong investment portfolio. Further support is drawn from the strong sponsor profile, Yunus Brothers Group, having diversified presence across various sectors. Ratings also take into account the high business risk profile due to cyclicality and competitiveness in local spinning sector and also the industry remains exposed to changes in economic environment, risks manifesting from developments including changes in interest rates, geo-political situation and ongoing rise in freight lines. However, business risk profile is supported by favorable government policies and higher demand for textile products across the globe enabling many local textile entities to undertake expansion.

The Company has increased its installed capacity to over 345,000 spindles. Historically, the Company has been operating at high utilization levels, but remained under pressure in FY20 due to pandemic induced slow-down in demand. However given subsequent economic recovery post first wave of COVID-19 together with favorable Government measures, volumes along with capacity utilization recovered during FY21. Exports (direct and indirect) continue to represent more than two-fourth of the sales mix with major bulk of direct export sales directed to Chinese trading houses. Client wise concentration is considered to be manageable with diversified local and international client base and long standing relationship with the clients.

Assessment of financial risk profile indicates robust profitability, strong liquidity profile and sound capitalization indicators. GTML recorded hefty rise in revenue on account of volumetric increase in sales and higher average selling prices. Spinning segment continued to be the main revenue contributor followed by knitting bedding products and dairy. Gross margins stood at much higher level in FY21 vis-à-vis FY20 owing to efficient procurement of cotton and higher yarn prices. Overall profitability is further supported by income generating from associated companies (namely ICI Pakistan, Yunus Energy and Lucky Holding). GTML has mobilized concessionary loan facility to purchase new technologically advanced machinery in a bid to achieve higher operating efficiencies and seek further capacity addition within knitting segment given its upbeat demand. Maintenance of performance metrics aligned with assigned ratings are considered important in the rating horizon.

For further information on this rating announcement, please contact Ms. Sara Ahmed (Ext: 207) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk .

Faryal Ahmad Faheem
Deputy CEO

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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .