VIS reaffirms 'A-' rating for Premium Textile Mills

June 07, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Premium Textile Mills Limited (PSX: PRET) at ‘A-’ for long-term and ‘A-2’ for short term with a stable future outlook, latest press release issued by VIS showed.

To recall, the previous rating action was announced on August 18, 2023.

PRET was incorporated in Pakistan on March 03, 1987, as a publicly listed company and is listed on Pakistan Stock Exchange Limited.

The principal activity of the company is the manufacturing and sale of cotton and polyester yarn.

During the year, the company established a Sock division that manufactures and sells Socks of different varieties under the management diversification plan.

Assigned ratings incorporate the constrained business risk profile of PRET, stemming from its exposure to economic cyclicality and intense competition within the spinning sector in Pakistan.

The sector's vulnerability to fluctuations in demand driven by economic factors poses inherent risks to the entity's performance.

Assigned ratings also consider the company’s financial risk profile.

The profitability profile reflects declining gross and operating margins due to elevated input costs and inflationary pressures.

Additionally, the capitalization profile is affected by increased gearing and leverage ratios resulting from higher debt levels for working capital and capital expenditure needs.

The liquidity profile is deemed adequate, albeit with a slight decline in the current ratio and extended cash conversion cycle, influenced by economic slowdown and reduced offtakes.

Furthermore, the coverage profile is weakened by subdued profitability and increased finance charges, leading to a decline in the debt service coverage ratio.

Rating take note of the investment in Solar power generation for costs management and diversification into knitting for value addition and business risk diversification.

Going forward, ratings will remain sensitive to the company’s ability to recover its eroded profitability, coverage, and improve its equity base to be commensurate with assigned ratings.

Moreover, maintenance of the liquidity profile will also be a key consideration moving ahead.

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