August 15, 2022 (MLN): VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Blessed Textiles Limited (BTL) to ‘A/A-1’ (Single A/A-One) from ‘A-/A-1’ (Single A Minus/A-One) while the outlook on the assigned ratings is ‘Stable’, the company filing on PSX showed today.
The long-term rating of ‘A’ reflects good credit quality and adequate protection factors; risk factors may vary with possible changes in the economy.
Meanwhile, the short-term rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and risk factors are minor.
Assigned ratings continue to take into account the established operating history of over three decades in the composite textile sector and strong group strength. Ratings also consider the qualified management team, IT infrastructure's suitability in relation to the size of operations, and long-standing client relationships, which ensures repeat business.
The strong growth trend in revenues, profit margins, cash flow generation with adequate debt servicing coverage, improved capitalization supported by profit retention, and a significant reduction in leverage ratios have all been noted as improvements in the financial risk profile during the review period.
However, the country's ongoing energy crisis, rising production costs as a result of inflation, and expected slowdown in demand given looming global recession and monetary tightening in major world economies are key business risk factors, posing a challenge to margin sustainability and future growth.
Ratings also take note of the capacity expansion initiative, which includes the construction of a new spinning unit with 13,056 spindles. The total revised project cost (including cost overruns due to recent currency depreciation) is around Rs3 billion; of which Rs1.8bn pertains to machinery, which is being financed through ILTFF debt facility (~75% is disbursed), and the remaining from internal cash generation.
At present, the construction of a building is complete while production is scheduled to begin in December 2022.
Segment-wise, on a 3-year average basis 70% of sales revenue is generated from the spinning segment while the weaving division accounts for the remainder. Both yarn and fabric sales registered a strong growth of 27% and 19%, respectively, in FY21.
Overall sales comprise a mix of local and international sales, with the share of domestic sales increasing from 46% to 55% in the last 18 months. In terms of growth, local sales increased by 43%, vis-à-vis 8% growth in exports, during FY21; a similar trend is noted in the outgoing fiscal year.
Major export destinations include China, Bangladesh, Turkey, Italy, Spain, and Belgium. On a timeline basis, client-wise sale concentration risk (in both yarn and fabric sales) has remained elevated.
The ratings remain dependent upon the sustenance of margins, leverage indicators, and profitability, going forward.
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