Press Release

VIS Maintains Entity Ratings of Metco Textile (Pvt) Limited

Karachi, April 16, 2020: VIS Credit Rating Company Limited (VIS), while maintaining the entity ratings of ‘A-/A2’ (Single A Minus/A-Two) assigned to Metco Textile (Pvt) Limited (MTL), has placed the same on ‘Rating Watch-Developing’ status. Long Term Rating of ‘A-’ reflects good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals, and good access to capital markets. Risk factors are small. Previous rating action was announced on February 8, 2019.

The revision in rating outlook reflects prevailing uncertainty in textile sector dynamics due to coronavirus outbreak, prolonged lockdown, overall contraction in demand and challenging economic environment. It is expected that the entire value chain of the textile industry will be effected by these developments. Status of the assigned rating is therefore uncertain as an event of deviation from expected trend has occurred; additional information will be necessary to take any further rating action, warranting a ‘Rating Watch-Developing’ status. Given that company has low borrowings compared its equity level, it is expected that ratings will remain stable post recovery of the ongoing situation; nevertheless as scenario is evolving rapidly, VIS will closely monitor and will accordingly take action to resolve the outlook status.

Principal activity of MTL pertains to yarn production for local market. Ratings continue to draw comfort from extensive experience and track record of sponsors through business cycles. The company recorded growth in net sales over FY19 on the back of higher average selling prices while volumes were largely stagnant. Conversely, gross margin of the company has decreased, which along with a higher operating expense base and increase in finance cost, translated into lower profitability for the company. Ratings also remain constrained by the high cyclicality & competitive intensity for spinning industry and volatility in cotton prices which translate into moderate to high business risk profile.

Liquidity profile of the company is considered adequate in view of satisfactory cash flows in relation to outstanding obligations. Moreover, equity base of the company has grown on the back of profit retention on a timeline basis. Although gearing has increased on account of higher short term borrowings, given that management has no plans for funding capital expenditure in the near future, leverage indicators are projected to remain manageable. Ratings will be contingent on achieving sustainable performance metrics and improvement in leverage indicators while efficient working capital management is also considered important in current operating environment.

For further information on this rating announcement, please contact Mr. Muhammad Ibad Desmukh (Ext: 205) or the undersigned (Ext: 306) at (021) 35311861-66 or email at info@vis.com.pk.



Faryal Ahmad Faheem
Deputy CEO

Applicable Criteria: Industrial Corporates (May 2019)
http://vis.com.pk/kc-meth.aspx

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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .