Shahtaj Textile suffers reduction in profits due to volatility in fuel and yarn prices: JCR-VIS

January 18, 2019 (MLN): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings of Shahtaj Textile Limited (STL) at ‘A-/A-2’. The long term rating of ‘A-’ signifies good credit quality with strong protection factors, whereas the short term rating of ‘A-2’ signifies good certainty of timely payment. Outlook on the assigned ratings is ‘Stable’.

The assigned ratings take into account strong sponsorship profile of ‘Shahnawaz Group’; the group comprises six companies including Shahtaj Textile Limited (STL). Other group entities belong to food and engineering related sectors.

Top line of the company witnessed a significant growth in the outgoing year. As per the management, increase in sales compared to preceding year was a combination of higher procurement of orders in both local and international market and some increase in average selling prices.

However, on account of rising fuel power prices and volatility in yarn prices, competitive pressures on margins coupled with an increase in finance cost resulted in reduced bottom-line of the company.

Going forward, management expects margins to improve on the back of reduction in gas prices by the government. Developments in this regard are yet to materialize. Maintaining performance indicators is considered important from a ratings’ perspective.

The management also expects nominal expenditure for capex requirements in the rating horizon which is expected to support the liquidity and debt service profile of the company. Improvement in capitalization indicators will remain a key rating driver, going forward.

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