Press Release

VIS Assigns Positive Outlook to Umar Spinning Mills (Pvt.) Limited

Karachi, July 6, 2022: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Umar Spinning Mills (Pvt.) Limited (USMPL) at ‘BBB+/A-2’ (Triple B Plus/A-Two). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. Previous rating action was announced on May 27, 2021.

Assigned ratings continue to factor in sound sponsor experience with three-decade operating history in the spinning sector. Positive revision in rating outlook reflects an improvement in financial risk profile, as evident from strong growth trend in revenues, profitability margins, cash flow generation with comfortable debt servicing coverage and improved capital structure supported by profit retention and timeline reduction in leverage ratios. Ratings also take note of capacity expansion initiative, which includes establishment of an open-end spinning unit (auto core-spinning project) with installed capacity of 1,512 rotors machines. Total estimated cost of the project is Rs. 1.8b; of which ~80% pertains to machinery which will be funded by LTFF while the remaining for construction of building is being financed through own sources. The production is scheduled to begin in Sept’22. As per management, this project is expected to result in ~30% increase in annual sales.

Akin to industry, higher average selling prices coupled with rupee devaluation led to a strong growth in topline during the period under review while better absorption of per unit fixed cost, efficient cotton procurement and inventory gains have resulted in timeline improvement in margins. Overall sales comprise a mix of local and export sales (direct & indirect). Korea and Italy are the top two destinations for direct exports, followed by Japan, Taiwan, Malaysia and others. Client-wise sale concentration risk is high, with top 10 clients accounting for more than half of total sales on a timeline basis. The positive rating outlook is assigned with the caveat that capitalization indicators and debt service capacity would remain intact over the expansion period. Ratings are also underpinned by sustainability of net margins, going forward.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 203) or the undersigned (Ext: 207) at (021) 35311861-70 or email at info@vis.com.pk .



Sara Ahmed
Rating Director

Applicable Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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