Karachi, March 13, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Umar Spinning Mills (Pvt.) Limited (USMPL) at ‘BBB+/A-2’ (Triple B Plus/A-Two). Long-term rating of ‘BBB+’ reflects adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy.
Short-term rating of ‘A-2’ denotes good certainty of timely payments; Liquidity factors and company fundamental. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Positive’ to ‘Stable’. Previous rating action was announced on July 06, 2022.
Revision in rating outlook reflects current weak macroeconomic environment both globally and locally as well as weakening of financial indicators of the Company. Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, high interest rate situation, inflationary pressures, higher electricity costs and demand slow down pose risks on the sector over the medium term.
In addition, high cyclicality and competitiveness in the spinning sector also adds to high business risk. Ratings further take note of capacity expansion project, which began last year with construction of a new building on the same premises. The project is now complete and the newly installed machinery, comprising 1,512 Autoscore spindles, has been operational since Jan’23, which can produce 350 bags per day of open-ended yarn. Management anticipates ~52% increase in annual production capacity.
Overall sales mix comprises local and export sales (direct and indirect). Strong YoY revenue growth of ~54% in FY22 was driven by sizeable increase in yarn prices and limited rupee devaluation impact, as direct yarn exports make up ~30% of sales, whereas volumetric off-take stood slightly lower than the previous year.
With similar price growth trend, sales in 6M’FY23 were up by ~13% vis-a-vis SPLY, despite ~17% volumetric decline due to reduced demand. Korea and Italy were the top two destinations for direct exports, followed by Bangladesh, Vietnam, China and Belgium. Client concentration remains high, with top ten clients consistently generating more than three-fifths of total sales.
It is pertinent to note that the Company achieved historic high bottom-line during FY22 due to sizeable revenue growth and jump in profitability margins. However, the same depicted noticeable contraction in the current year, highlighting a contrasting trend, which significantly impacted cash flow generation. Going forward, maintenance of margins will remain important for 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
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/