December 04, 2018 (MLN): Pakistan Credit Rating Agency (PACRA) has assigned initial entity ratings to Salfi Textile Mills Limited at ‘BBB’ for Long Term and ‘A3’ for Short Term, with a stable outlook forecast.
According to the rating agency, the ratings of Salfi incorporate its working capital cycle which remain stretched despite improvement in profitability. The financial risk profile of the company is characterized by well-maintained leveraged capital structure, however coverages remain under pressure due to relatively small size of cash flows. Amidst rising interest rates coverages may stretch further. Long association of experienced and professional management team adds comfort. Going forward, management is planning to merge all three textile entities in order to benefit from the economies of scale.
The ratings are dependent on sustaining business margins while improving its financial risk via improved core coverages. Meanwhile, prudent management of short term liquidity would be rating essential. Going forward, materialization of successful merger of all three textile entities would be significant to rating.
