Karachi, March 25, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Soorty Enterprises (Private) Limited (SEL). Long Term Rating of ‘AA-’ reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 31, 2018.
Assigned ratings take into account SEL’s position as one of the leading denim fabric and garment manufacturers in the country with vertically integrated operations, and international presence. Ratings also incorporate the company’s satisfactory operating track record, moderate business risk and strong financial risk profile. Reaffirmation of ratings incorporates SEL remaining compliant with all communicated financial benchmarks.
Over the last few years, SEL has continued to enhance its capacity in spinning, denim fabric and garment segment with increased focus on sustainability initiatives. In the latter half of FY19, capacity was enhanced across all segments. Moreover, further expansion in all three segments is ongoing and expected to be completed over the next two and a half years. Capacity utilization of all three segments-yarn, fabric and garments were reported on the higher side in the ongoing year. Business risk profile supported by stable demand for denim products; US-China Trade disruption and recent coronavirus outbreak to support sales as major buyers look to diversify procurement. However, disruption in order pipeline and supply chain due to coronavirus outbreak remains key business risk factor in the short-term for most textile players.
Assessment of financial risk profile incorporates robust profitability indicators, strong liquidity profile and conservative financial policy as reflected by a low leveraged capital structure. Geographic sales mix demonstrates higher concentration of fabric sales directed to Bangladesh and garment sales directed to European market. Ratings take into account management’s increasing efforts to tap clients in the US market.
Equity base of the company has grown at a healthy pace over the last seven years due to internal capital generation. Debt carried on the balance sheet comprises short-term debt to fund working capital requirements. Despite company’s projections to finance its expansions through a mix of internal cash flows and Islamic LTFF, leverage and gearing indicators are expected to remain commensurate with benchmarks for the assigned ratings given expected improvement in retained profits. Going forward, ratings will remain dependent on compliance with communicated benchmarks.
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