Press Release

VIS Assigns Initial Entity Ratings to Dynamic Sportswear (Private) Limited

Karachi, May 16, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Dynamic Sportswear (Private) Limited (DSPL). Long term entity rating of ‘A-’ reflects good credit quality, adequate protection factors while risk factors may vary with possible changes in the economy. Short term rating of ‘A-2’ indicates good certainty of timely payment, liquidity factors and company fundamental factors are sound. Outlook on the assigned ratings is ‘Stable’.

The ratings assigned to DSPL take into account the moderate risk profile of the company underpinned by its presence in the export oriented value-added textile segment, sound control on quality maintenance coupled with extensive sponsor experience and established operating track record of nearly three decades in knitting business. Ratings also reflect long-standing business relationships with leading international brands and growing demand of hosiery products. Further, the recent rupee devaluation positively impacted financial results for the review period. The ratings also incorporate management’s focus on expanding the scale of operations with recent capex involving procurement and installation of 148 knitting machines. However, the ratings remain sensitive to any adverse changes in regulatory duties and lack of revenue diversification in terms of value-chain process and product mix. The main shareholding of the company is vested with the sponsoring family.

Assessment of financial risk profile encapsulates strong revenue growth in the outgoing year and onwards with subsequent translation of the same into profitability metrics. Revenues were relatively subdued in FY20 amid pandemic crisis leading to supply chain disruptions. However, sales picked momentum during the outgoing year with gradual recovery of international markets, capitalization of market gap by local players paved by the pandemic and export-oriented policies introduced by the government. Subsequently, margins exhibited positively trajectory and were recorded higher than the pre-covid levels on account of the company entering the medicated socks market niche entailing higher margins than the existing product portfolio along with reaping of economies of scale. In line with higher scale of operations and margins, liquidity position improved and is considered strong on account of sufficient cash flow generation in terms of outstanding liabilities. Further, the ratings factor in conservative capital structure with limited reliance on long-term borrowings. The increase in leverage indicators during the year to fund capital expenditure and increasing working capital requirements during the outgoing year was largely offset by sizable growth in equity base in the ongoing year; the same remains on a lower side in comparison to industry averages. In addition, as DSPL primarily caters to exports, majority of funding is obtained under SBP’s concessionary schemes involving lower markup than commercial debt; the same translates into an improved bottom line of the company. The company plans to increase utilization of short-term financing going forward mainly for increased working capital requirements, albeit remaining conservative. The ratings remain dependent on maintenance of margins, realization of projected targets, incremental cash flow generation and cost savings from recent capital expenditure and maintenance of leverage indicators.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 or email at info@vis.com.pk .

Javed A. Callea
Advisor

Applicable rating criterion: 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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .