November 28, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Shahtaj Textile Mills Limited (PSX: SZTM) at ‘A-’ for long-term and ‘A-2’ for short term with a stable future outlook, the latest press release issued by VIS showed.
A medium to long-term rating of 'A-' indicates good credit quality; Protection factors are adequate.
While the short-term rating of 'A-2' indicates good certainty of timely payment.
The previous rating action was announced on November 23, 2022.
Shahtaj Textile Limited (SZTM), is a publicly listed company headquartered in Karachi.
The company specializes in the production of grey fabric. Employing over 480 employees, SZTM operates a manufacturing unit in Kasur.
The energy requirement is met by gas generators, a diesel backup, and grid supply by WAPDA, and plans to integrate a 1MW solar plant to contribute to their environmental initiatives.
The business risk environment of the local textile sector remains elevated amid weak macroeconomic environment, high-interest rates, inflationary pressures, rising raw material costs, an on-going energy crisis, and a global slump in demand.
Resultantly, Pakistan’s textile exports witnessed a 10% YoY decline to $16.7 billion (FY22: $18.5bn).
SZTM’s assigned ratings are supported by over three decades long operational history, strong sponsor support and a limited reliance on imported yarn.
Ratings also take note of elevated client concentration risk and subdued sales growth during the review period.
Rating factor in revenue growth of 9% in FY23 primarily due to increased volumes, surpassing the Rs8bN mark.
However, in 1QFY24 a 16% YOY decrease is observed in net sales.
The top ten clients make up approximately 80% of the entire revenue, indicating a significant concentration risk.
In addition, ratings take account of the weakening of cash flow coverage metrics, with DSCR decreasing on a timeline basis.
The company maintains stable gearing and leverage ratios, although the planned installation of a solar power plant could introduce new long-term debt, potentially affecting capitalization.
Going forward, ratings are dependent on improving cash flow coverage metrics and maintaining capitalization.
Copyright Mettis Link News
Posted on: 2023-11-28T10:55:38+05:00
