According to a press release by the credit rating agency, JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to Premium Textile Mills Limited (PRET).
Outlook on the assigned ratings is ‘Stable’.
PRET commenced operations in 1989 and is involved in the production of dyed yarn and heather greige products. The company started spinning operations with 12,230 spindles, over the years the spindle count has increased to around 77,000 with production of approximately 20 million kilograms of yarn annually.
Ratings assigned to PRET take into account the company’s established track record in the textile spinning industry, improving profitability profile and adequate liquidity indicators. However, ratings are constrained by cyclicality in earnings profile and high leverage indicators. Current financial profile remains adequate to sound; however, with the implementation of the Balancing, Modernization, Replacement & Expansion (BMRE) project largely aimed towards improvement in efficiency; leverage and cash flow profile are projected to weaken over the rating horizon.
A certain amount of risk is inherent in the spinning industry with respect to the volatility observed in the cotton prices which has an effect on the margins of PRET. The financial profile of the company may vary with industry cycle. Last two years with regards to the industry have been beneficial for the company in the form of higher yarn prices. Gross profit of PRET for 9M18 and FY17 increased on the back of favorable price adjustment in sales relative to cost.
Improved profitability has resulted in healthier cash flow generation which had a favorable impact on the debt servicing coverage and Funds From Operations (FFO) in relation to long-term debt multiples of PRET during FY17. The same have declined at end 9M18 owing to higher utilization of borrowings. PRET’s short term borrowings have increased in line with the company’s inventory levels. Leverage indicators have remained on the higher side since the last two years and have increased further in the ongoing year to fund the BMRE project.