VIS Assigns Initial Entity Ratings to Sitara Textile Industries Limited
Karachi, October 02, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to Sitara Textile Industries Limited (STIL). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality coupled with reasonable and sufficient protection factors. Moreover, risk factors are considered variable with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound and risk factors considered small. Outlook on the assigned ratings is ‘Stable’.
STIL is a small sized export-oriented processing unit; virtually wholly owned and managed by the sponsoring family. The sponsors have supported in the form of interest free loan payable at the discretion of the company. The ratings incorporate its presence in value-added textile segment and the management’s focus to increase operational efficiency through BMR.
The company’s topline witnessed a muted growth over the last few years, with largely stagnant gross margins. Around four-fifth of the net revenues comprises exports sales, while local revenue mainly emanates from sales to Sitara Hamza Limited, a wholly owned subsidiary of STIL. Given modest growth in equity base due to limited profitability and increasing trend in trade payables, debt leverage indicators have remained on a higher side.
However, gearing has trended downwards over the years. Further, debt service coverage is considered adequate given minimal long-term borrowings. The ratings are constrained by relatively small scale of operations, limited profitability and relatively high debt leverage. Keeping leverage indicators at acceptable levels while improving net margins are considered important for the assigned ratings.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan