VIS Reaffirms Entity Ratings of Lucky Knits (Private) Limited
Karachi, October 04, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Lucky Knits (Pvt.) Limited (LKPL) at ‘A-/A-1’ (Single A Minus/A-One). Outlook on the assigned ratings is ‘Stable’. Medium to long-term entity rating of ‘A-’ reflects good credit quality, adequate protection factors. 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. The previous rating action was announced on August 16, 2021.
Assigned ratings draw comfort from strong sponsor profile (Yunus Brothers Group) which has a diversified presence across various sectors. Sponsor support is evident from a long-term (25 year) unsecured interest free loan from director and associated company (Lucky Energy (Private) Limited) for business operations in 2015. Going forward, presence of sponsor support in case need arises will be important from a ratings perspective.
Although overall industry wide recovery in textile exports was noted post COVID-19, financial risk profile of the company weakened in FY21 as the company had undergone a change in the management team after sudden demise of their Chief Operating Officer (COO). The company has successfully transitioned its management team reflected in improvement of profitability and liquidity indicators during FY22. Expected slowdown in the global economy over the medium-term, increase in electricity and interest rates and fluctuation in exchange rates continue to remain the key rating sensitivities.
Assessment of financial risk profile incorporates recovery in profitability and liquidity indicators of the Company in the outgoing year. However, elevated leverage levels were reported due to equity erosion. Escalated freight charges and lower customer confidence in FY21 due to change in management team negatively affected the profitability of the company with LKPL reporting losses. Nevertheless, during FY22, earnings profile recovered on the back of revenue growth, higher exchange gains and rationalized distribution expenses.
Increasing operational efficiencies while maintaining topline growth going forward will be important from ratings perspective. Cash flow coverage indicators improved during FY22 after weakening in the past two years. Capitalization indicators have risen on a timeline basis due to elevated short-term borrowings and equity erosion due to losses. Ratings are underpinned on projected improvement in short-term liquidity and leverage levels, 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