December 26, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Shahtaj Textile Limited (STL) at ‘A-/A-2’ (Single A Minus/A-Two).
The long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Risk factors may vary with possible changes in the economy.
The short-term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are considered sound with good access to capital markets.
Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
The assigned ratings draw comfort from 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. STL is primarily engaged in the manufacturing, selling and marketing of grey fabric.
Net sales of STL witnessed a growth of 22.0% during the outgoing year. Increase in sales was achieved on the back of higher average selling prices while aggregate volumes were stagnant.
Client concentration in sales has increased and stands on the higher side; this risk is partially mitigated by long term relationship with clients.
With lower energy costs and rupee devaluation, gross margins increased during period under review. Although finance cost increased, profit after tax more than doubled supported by one-time exchange gain on account of currency devaluation.
Going forward, maintaining performance indicators is considered important from a ratings’ perspective.
Although equity base has increased on the back of profit retention, leverage indicators have remained on the higher side during period under review.
Going forward, management plans capex for replacement of generators in order to enhance efficiency. The capex will be funded by long-term financing.
Limited debt drawdown is expected to support liquidity and debt service profile of the company. Improvement in capitalization indicators will remain a key rating driver, going forward.
Funds from Operations (FFO) levels of the company are considered sufficient to meet the outstanding debt obligations as indicated by sizeable debt servicing coverage ratio. Current ratio has remained at sufficient levels above 1.0x. Inventory and trade debts also provide adequate coverage for short-term borrowings.
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