Press Release

VIS Assigns Initial Entity Ratings to Chiniot Textile Mills Limited

Karachi, June 06, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to Chiniot Textile Mills Limited (CTML). Long-term rating of ‘BBB’ signifies adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.

Headquartered in Lahore, Chiniot Textile Mills Limited (CTML) is primarily engaged in the production and sale of yarn with total installed capacity of ~26K spindles while further addition of around 6-8K new spindles is planned over the rating horizon. The ownership of the company is shared among four members of the sponsoring family while presently three are actively involved in business affairs. Production facility is located at District Kasur, Punjab. Power requirement of 5.6MW is met through two sources; national grid and two gas-based generators.

Assigned ratings capture the extensive sponsor experience, increasing trend in yarn production volume, sound revenue growth and continued improvement in margins over the last three years. However, rising energy cost and sizeable uptick in cotton prices given the present commodities super-cycle will exert pressure on operating margins, going forward. In addition, high cyclicality and competitiveness in the spinning sector translate into high business risk profile. Liquidity profile is sound with healthy cash flow generation in line with improving profitability. Equity base despite growth on a timeline basis has remained limited in terms of size due to which leverage metrics are elevated. Room for improvement exists in terms of increasing board size and setting up an independent internal audit function.

Entire revenue emanates from local sales while catering mainly to customers based in Karachi & Faisalabad regions. Given that majority of sales are directed towards institutions, sale concentration risk in terms of clients is medium to high, with top 10 clients constituting around ~34% of total sales. As per management, more than three-fifth of sales are on cash basis while credit terms extend up to 60 days. Therefore, working capital cycle necessitates utilization of short-term financing to fund inventory levels. Stock levels are elevated while trade debts and stock in trade are more than sufficient to cover short-term borrowings. Going forward, maintenance of liquidity indicators, achievement of projected revenue growth and sustainability in margins is considered important from a rating perspective.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.





Javed Callea
Advisor

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

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