March 29, 2019: VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A-/A-1’ to J.K Spinning Mills Limited. Outlook on the assigned ratings is ‘Stable’.
The medium to long-term rating of ‘A-’ signifies good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ signifies high certainty of timely payments; liquidity factors are excellent and supported by good fundamental protection factors.
Net sales comprise a mix of local and export, as sales of yarn are primarily in the local market while sale of fabric products is majorly export oriented. Client concentration has been on the lower side while key export markets of the company have been Europe and USA.
Capacity utilization of both segments has been on the higher side in line with increasing demand for yarn and home textile products. The company has enhanced its capacity in FY18 and is in the process of adding more spindles.
Overall profitability of the company has exhibited improvement mainly on account of higher yarn prices. With procurement of cotton and sale of yarn mainly emanating from local market, the vulnerability to fluctuations in forex rates is low.
Also an integrated business profile reduces JKSM’s core reliance on cotton and yarn prices and places the company in a comfortable position.
The overall profit margins of the company improved during FY18 on the back of favorable yarn and fabric prices, strategic cotton procurement, and moderate operational costs.
Going forward, capacity enhancement is expected to boost JKSM’s competiveness and sales, which, in turn, would positively impact the overall profitability and cash flow generation.