VIS reaffirms ‘A-’ rating for PKTL

March 18, 2024 (MLN): The VIS Credit Rating Company Limited has reaffirmed the entity ratings of Pak Kuwait Textiles Limited (PKTL) at ‘A-’ for long term and ‘A-1’ for short term with a stable outlook forecast, latest press release issued by VIS showed.

Medium to long term rating of 'A-' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy.

Short term rating of 'A-1' indicates high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors.

To recall, previous rating action was announced on October 20, 2022.

Pak Kuwait Textiles Limited was incorporated as unquoted Public Limited Company in September 1981 under Companies Act 1913 (now Companies Act, 2017).

The Company is principally engaged in production and sale of cotton and polyester blended yarn. The registered office of the Company is located at 29- Shadman II, Lahore.

The Company has two business units with one located in Hadali Town, Jauharabad, District Khushab while the other unit is located at 5-Km Raiwind Manga Road, District Kasur.

Assigned ratings incorporate elevated business risk in the textile sector, stemming from a weak macroeconomic environment, high-interest rates, inflationary pressures, escalating raw material costs, ongoing energy crisis, and a global demand slump.

Despite the industry's historical significance, these factors pose challenges to margin sustainability and future growth.

Assigned ratings also consider the financial risk profile of the company.

The profitability profile reflects the adverse impact on the company's top line due to depressed demand and elevated raw material costs, leading to shrinking gross and operating margins.

The capitalization profile, while depicting signs of weakening, remains at adequate levels.

Liquidity also remains adequate, albeit reporting slight weakening during the review period.

However, the coverage profile came under severe stress in FY23 due to significant losses, and elevated finance burden during the period.

Nevertheless, in 1QFY24 with improvement in operational cash generation, the Company was able to recover the coverage metrics to adequate levels.

Going forward, ratings will remain sensitive to the company’s ability to sustain the improvement in its profitability and coverage metrics as depicted in 1QFY24, to be commensurate with assigned ratings.

Moreover, strengthening of capitalization indicators as well as the liquidity profile of the Company will also remain the key rating consideration.

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