VIS Maintains Entity Ratings of Union Fabrics (Private) Limited

Karachi, January 06, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained entity ratings of ‘A-/A2’ (Single A Minus/A-Two) assigned to Union Fabrics (Private) Limited (UFPL). Long Term Rating of ‘A-’ reflects good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals, and good access to capital markets. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Rating Watch-Developing’ to ‘Stable’. Previous rating action was announced on April 24, 2020.

UFPL currently operates in the home textiles, processing and value added business lines in addition to weaving. Capacity utilization levels of sizing, weaving, stitching and processing segments continued to rise and stood above 90% during the outgoing fiscal year. Overall corporate governance framework depicts room for improvement given status of a private limited company.

Assigned ratings incorporate moderate business risk profile of the company. Textile exports depicted growth of 9.3% during FY20 driven largely by sizeable currency devaluation in the outgoing year. Overall growth emanated from the value added segment. The sector also benefited from the COVID-19 related boom in exports. Favourable government policies for enhancing exports and improving country’s perception and law and order situation bode well for the textile sector. Conversely, increasing cost of doing business and reduction in rebate rates may impact margins for selected players. Even though implications of COVID-19’s second wave remain elevated, we expect the order book for the industry to remain strong in the ongoing year, easing our business risk concerns.

Assessment of financial risk profile incorporates improvement in profitability profile, adequate liquidity profile and sound capitalization indicators. Improvement in gross margins during FY20 was a function of sizeable currency devaluation, higher volumetric growth and value-added pricing. Going forward, management envisages profitability to improve in the backdrop of higher projected revenue and margins from the value added segment. Liquidity profile of the company is considered adequate in relation to outstanding obligations.

Going forward, with improving profitability and limited additional long-term debt drawdown, liquidity profile is expected to strengthen. Equity base of the company witnessed an increase owing to equity injection and profit retention. Leverage indicators have increased in the ongoing year due debt drawdown to fund capex and working capital requirement. Given projected increase in profitability and limited additional long-term debt drawdown, capitalization indicators are expected to improve going forward.

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

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