Karachi, January 09, 2023 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Artistic Denim Mills Limited (ADML) at ‘A-/A-2’ (Single A Minus/ A-Two). The medium to long-term rating of ‘A-’ signifies good credit quality and adequate protection factors; risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the ratings is ‘Stable’. Previous rating action was announced on December 31, 2021.
ADML operates as a vertically integrated denim fabric and garment manufacturer. The Company’s revenues are largely export-oriented. Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, rising interest rates, inflationary pressures, and higher electricity costs pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally. Hence, meeting projected growth targets and maintaining financial risk profile will be important for ratings.
The assigned rating takes into account manageable financial risk profile of the Company. Sales revenue reported a three year compounded growth rate of 28% attributable to volumetric growth, USD/PKR parity and favourable product mix. On the profitability front, margins depicted a downtick in the outgoing year due to higher input costs (largely fuel); however, the same improved in the ongoing year due to PKR devaluation and cost efficiencies. Liquidity profile depicts adequate cash coverages against outstanding obligations.
On the capitalization front, with growth in debt levels being greater than equity base to finance expansion and working capital needs, gearing and leverage ratios have increased during the review period. Although management plans to drawdown additional debt for the bleaching unit, they believe capitalization indicators are expected to remain within manageable levels supported by profit retention. Going forward, meeting projected financial indicators amidst subdued macroeconomic environment (locally and globally) will be important from a ratings perspective.
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/