VIS reaffirms entity ratings of Lucky Textile Mills

December 04, 2024 (MLN): VIS Credit Rating Company Limited (VIS) has upgraded entity ratings of Lucky Textile Mills Limited (LTML) to ‘AA-/A1+’ (Double A Minus/A One Plus) from ‘AA-/A1’ (Double A Minus/A One).

Medium to long-term entity rating of ‘AA- reflects high credit quality; Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions.

Short Term Rating of ‘A1+’ indicates the strongest likelihood of timely repayment of short-term obligations with outstanding liquidity factors. The outlook on the assigned rating is ‘Stable’. The previous rating action was announced on November 20, 2023.

LTML, a publicly unlisted company, is part of the Yunus Brothers Group (YBG) and is wholly owned by Y.B. Holdings (Private) Limited.

Y.B. Holdings has a diversified presence across various sectors including power generation, cement, real estate, textile, chemicals, pharmaceuticals, food, entertainment, and automotive sectors.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition.

The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors.

Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and inconsistencies in domestic fiscal policies and procedures.

Supply-side risks, including fluctuation in local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

The ratings reflect LTML’s strong sponsor profile, diversified investment portfolio, and successful integration of its spinning unit. The Company has exhibited revenue growth, driven largely by rupee devaluation and higher prices.

Additionally, a shift in the composition of the export market has led to reduced client concentration in export sales, further enhancing stability. LTML continued to demonstrate strong profitability margins in FY24.

The expansion of the equity base, coupled with a reduction in total debt, has improved gearing and leverage ratios.

While the Debt Service Coverage Ratio (DSCR) has experienced a slight decline due to an increased current portion of long-term debt, the Company continues to maintain a strong DSCR position.

Moving forward, sustaining margins, coverages, and leverage ratios will remain important from the rating perspective.

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