Karachi, July 04, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) assigned to Metco Textile (Pvt) Limited (MTL). Outlook on the rating remains stable. 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’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals, and good access to capital markets. Risk factors are small. Previous rating action was announced on May 07, 2021.
The ratings take into account the demand and supply dynamics of the sector. Post COVID, a surge in demand, combined with a disrupted supply chain has resulted in an upward movement in commodity prices during FY21, with the trend continuing into FY22. Higher yarn prices were capitalized by the spinning industry, with high gains on low cost inventory. During FY22 however, cotton prices have started to incline, which may curtail margin of the sector going forward.
During FY21 and 9MFY22, topline of the Metco Textiles exhibited significant uptick driven primarily led by higher product prices. Going forward, volumetric growth is projected from enhanced capacities, which is expected to continue revenue increase. In FY21, margins also recorded significant improvement on the back of higher inventory gains which continued in 9MFY22. Notable improvement in gross margins was supported by higher yarn prices coupled with favourable cotton buying by the Company. Net margins, which historically have remained lower also recorded sizable improvement. Going forward, however, gross margins are expected to rationalize on account of streamlining of commodity prices. In addition, capital expenditure funding coupled with high debt servicing cost may exert some pressure on bottom line profitability in the future.
Ratings also take into account capital expenditure being incurred by the Company to enhance production capacity, improve efficiency and diversify the product mix. While CAPEX, upon completion, is expected to support revenue growth, gearing and leverage may depict an increase in the medium term. The Company’s liquidity indicators have strengthened on the back of higher profitability. Going forward, sustainability of topline growth and maintenance of margins along with sound liquidity and capitalization indicators will remain important for ratings.
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Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
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