Karachi, October 05, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Kohinoor Textile Mills Limited (KTML) at ‘A+/A-1’ (Single A Plus/A-One). Medium to long-term rating of ‘A+’ reflects good credit quality and adequate protection factors.
Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-1’ indicates high certainty of timely payment; liquidity factors are excellent and supported by good fundamental factors. Risk factors are minor. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on July 22, 2022.
Ratings continue to reflect KTML's extensive operational track record spanning over seven decades, vertical integration in yarn, fabric, and home textile production, well-distributed geographic and client sales mix, and strong commitment to sustainable manufacturing practices.
Ratings reaffirmation takes into account the consistent revenues driven by growing local sales and rupee depreciation countering export volume decline. Profit margins, while peaked in FY22, have returned to historic levels affecting cash flows. Consequently, debt coverage metrics have weakened, yet still remain competitive in the sector.
Gearing and leverage ratios remain below 1.0x and favourable to peers. Adequate liquidity is slightly hindered by extended cash conversion cycle. The overall governance structure is sound, but ownership and managerial roles may be segregated for transparency.
Business risk profile factors in the high-interest rate environment, inflationary pressures, rising raw material costs, ongoing energy crisis in the country, and a global slump in demand. The same is reflected in a ~15% year-on-year decline in Pakistan's textile exports in FY23, totaling USD 16.5b (FY22: USD 19.3b).
Moreover, all these factors pose a challenge to the sector over the medium term in terms of margins sustainability and future growth. Ratings are constrained by the current weak macroeconomic environment both globally and locally.
Ratings also take note of capacity upgrades, such as addition of 22K ring spindles and 96 looms into the current spinning and weaving facilities. This move resulted in ~16% and ~43% surge in the installed capacity for each respective division when compared to FY21 levels. The entire project, costing about Rs. 4b, was funded through LTFF. Moving forward, management prioritizes operational efficiency over new capital projects.
Half of the revenue comes from local high-quality yarn sales tailored for suiting fabric. Home textiles, such as bedding, quilting, and curtains, which are mainly exported, follow in revenue generation, with greige fabric sales split equally between local and international markets.
Geographically, Europe has become the main export destination, contributing to half of total exports, trailed by the USA and Canada, with smaller segments in Asia, Australia, and Africa. The top-ten longstanding clients consistently cover two-fifths of sales, with a policy ensuring no single client exceeds 10% to control concentration risk. Going forward, the ratings will hinge on maintaining consistent leverage and improving margins, cash flows and debt coverage ratios.
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
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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