February 09, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Towellers Limited (PSX: TOWL) at ‘A’ for long-term and ‘A-1’ for short-term with a positive future outlook, the latest press release issued by VIS showed.
Long Term Rating of ‘A’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy.
Short Term Rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors; and risk factors are minor
Established in 1973 as a private limited company and subsequently converted into a Public Limited Company in 1994, Towellers Limited is a vertically integrated textile mill primarily engaged in the export of knitted garments and home textiles.
The company's key export markets include the United States, Spain, Italy, and Germany. Its Head office is located in F.B. Area, Karachi, while its manufacturing facilities are situated in North Karachi Industrial Area and Federal B. Area, Karachi.
Assigned ratings incorporate constrained business risk profile attributed to the government’s withdrawal of RCET (Regionally Competitive Energy Tariff) and Subsidized Financing Schemes.
The cost of production for the sector increased notably with the significant increase in energy prices and an elevated policy rate in the country.
Moreover, recessionary trends in both local and international economies also lowered the demand. Looking ahead, the demand outlook for the textile sector is anticipated to be constrained by prevailing economic uncertainties.
Nevertheless, the depreciation of the rupee has rendered country’s exports slightly more competitive in international markets.
Additionally, there is optimism as an anticipated good cotton crop in FY24 is expected to alleviate some pressure on input costs.
Furthermore, slight rebound in international demand during the current fiscal year supporting the revenue growth of textile players in the current fiscal year.
Change in the outlook incorporates topline growth and improved margins, which are expected to improve further in FY24.
TOWL achieved revenue growth of 8% YoY in FY23, benefitting from rupee devaluation, though there was a marginal contraction in sales volumes.
Consequently, the gross profit increased to Rs3.1 billion, and the gross margin improved to 28.35%.
Substantial income from short-term investments further contributed to the Net profit which more than doubled YoY to Rs2.4bn in FY23 despite finance cost pressures.
Assigned ratings also take into account the company’s sound capital structure, as TOWL has historically maintained a low gearing and leverage profile.
The capitalization profile stayed intact at conservative levels with the increase in profitability. Funds from Operations (FFO) witnessed an improvement in FY23 due to higher profitability.
The liquidity profile of the company remained strong during the period under review as the current ratio increased to 3x, while the quick ratio improved to 2.26x, indicating sufficient cushion to cover any future short-term borrowings.
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Posted on: 2024-02-09T17:12:00+05:00
