Karachi, May 26, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Dynamic Sportswear (Private) Limited (DSL) at ‘A-/A-2’ (Single A Minus/A-Two). Medium to 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 ‘A-2’ indicates good certainty of timely payment, liquidity and fundamental factors are sound. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on May 16, 2022.
Ratings factor in DSL’s 30-year history of producing and exporting a diverse range of socks to renowned global brands and retailers, strong export focus with moderate reliance on imported materials, and commitment to environmentally-friendly manufacturing practices. Ratings reaffirmation reflects record-high revenue in FY22 driven by rupee devaluation, growing capital buffers on supported by healthy retention, and favourable leverage metrics vis-a-vis peers. However, recent global demand slowdown led to a volumetric decline in the current fiscal year.
Net profitability and cash flows were affected by bad debts, increased operating overheads, and extended cash conversion cycle due to high inventory holding days. 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. Ratings are constrained by current weak macroeconomic environment globally and locally.
Almost entire revenues emanate from exports, with around half of it directed towards US market, indicating geographical concentration. The rest is shared by Europe, Canada and Middle East regions. Client concentration risk is also elevated as the company primarily deals with brokerage houses making large volume purchases, with the top three clients contributing nearly 90% of total revenues.
However, having renowned brands like Levis, Dockers, CAT, Everlast, and Dickies as end clients offer some comfort. Since last review, installed capacity grew by ~10% to 5.5m dozens per year, with the inclusion of 60 knitting machines, resulting in a total of 771 machines. The capex was financed through a 90:10 ratio of debt and internally generated capital. Going forward, improvement in financial performance metrics specifically net margin and debt coverage ratios is important for sustenance of 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/