PACRA maintains entity ratings of KOHTM

June 27, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Kohat Textile Mills Limited (PSX: KOHTM) at "A-" for the long term and "A2" for the short term with a stable outlook forecast, the latest press release issued by PACRA showed.

The assigned ratings are indicative of KOHTM’s modest business profile.

The company’s revenue is on a growing trajectory, during 9MFY23, sales inched up to Rs4 billion (9MFY22: Rs3.3bn).

Margins and net profitability recorded a dip attributable to high expenses.

Moreover, the cost of goods sold increased sizably during 9MFY23 as compared to the respective quarter of the last year.

Increased borrowing in the current year resulted in higher finance costs, which impacted negatively on profitability.

During FY22, net profitability clocked in at Rs292 million (FY21: Rs312m), whereas, during 9MFY23, net income decreased further to stand at Rs27m.

The financial risk matrix suggests moderate leveraging and potential for coverage expansion.

Due to limited profitability and cash maintained, the equity base increased moderately over the period.

Going forward, it remains essential for cash flows to significantly increase in order to meet forthcoming debt obligations.

During 9MFY23, the textile exports were valued at $12.47bn compared to $14.24bn, reflecting a 12% decline YoY, the declining trend has been recorded in the last two quarters.

The country’s textile exports for the month of March clocked in at US$1.26bn, up 7% MoM. The decline in the previous overall exports is driven by attrition in the demand pattern of export avenues.

During the month of March, value-added textile exports increased by 6% MoM to $863m mainly due to readymade garments and knitwear increasing by 8% and 12% MoM respectively while towels decreased by 6% MoM.

Meanwhile, in volume terms, Knitwear, Readymade Garments, Bedwear, and Towels increased by 18%, 13%, 5%, and 2% MoM respectively.

Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries.

The ratings are based on the company's capacity to continue operating under the current circumstances.

The ratings will be impacted if there is a significant decline in sales and/or debt coverages as a result of the protracted downturn, which will increase financial risk.

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