Karachi, May 25, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Indigo Textile (Private) Limited (ITPL) at ‘A/A-1’ (Single A/A-One). Medium to long-term rating of ‘A’ denotes good credit quality; protection factors are adequate. 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 rating is ‘Stable’. Previous rating action was announced on April 25, 2022.
Ratings incorporate extensive experience and industry presence of sponsor groups, along with the company's 20-year track record in the denim sector, including operations such as rope-dyeing, weaving, and finishing. Consistent growth in production and export volumes, sizeable revenue increase over the years, and healthy profitability leading to an upward trend in capitalization further support the ratings. Additionally, strong export orientation and almost entire yarn procurement sourced locally are viewed positively.
Ratings reaffirmation takes note of considerable improvement in margins and cash flows in the current fiscal year while reduced working capital days indicate improved liquidity profile. Leverage ratios remain satisfactory given limited debt levels. Business risk profile takes into account industry wide growth in exports in FY22; however, recent floods across the country, high interest rate situation, inflationary pressures, higher electricity costs and demand slow down impacted the current fiscal year and pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally.
Direct and indirect exports over the past two years had an average split of 57:43, with over two-thirds of direct exports concentrated in Bangladesh, Turkey, Hong Kong, and Egypt. High client concentration risk exists, with top ten clients generating three-fifth of direct exports and more than four-fifth of indirect exports, respectively while an associate company, accounts for ~15% of total sales. In FY22, the company increased production capacity by ~16% by installing 42 new looms out of 61 initially planned for the year. Supply issues from the vendor caused delays for the remaining 19 looms, now expected to be installed in June'23. The capex was funded through subsidized schemes.
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