April 05, 2024 (MLN): VIS Credit Rating Company (VIS) has upgraded the entity ratings of Master Textile Mills Limited (MTML) at ‘A+’ for the long term and maintained the short-term rating at ‘A-1’, latest press release issued by VIS showed.
Medium to long term rating of A+ indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy.
Short term rating of ‘A-1’ indicates High certainty of timely payment; Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor.
To recall, the previous rating action was announced on November 04, 2022.
Established in 1992, MTML is a vertically integrated textile composite engaged in the manufacturing and selling of yarn, griege cloth, dyed fabric, denim fabric and stitched garments.
The head office and factory are situated at Manga Mandi, Lahore, Pakistan.
MTML operates under the umbrella of Master Group of Industries, which has diversified presence across various business segments including foam and spring mattresses, engineering, automobiles, chemicals and energy 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 liquidity constraints due to lengthy process of sales tax refunds.
Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.
Assigned ratings also consider the company’s business updates wherein MTML demonstrated a consistent increase in topline during the last 4 fiscal years.
The gross margin also registered consistent improvement as management continued to focus on enhancing operational efficiency.
Consequently, profitability profile displayed improvement during the period under review.
Assigned ratings take into account the company’s financial risk profile. Long term debt of the Company declined during the review period amid absence of any major capital expenditure.
MTML has availed the arbitrage opportunity through short term investments by increasing the short term borrowing at lower rates.
With higher internal cash generation, capitalization profile witnessed improvement in FY23 and 1QFY24.
Ratings are also underpinned by adequate liquidity and sound cashflow coverage profiles with Debt Service Coverage Ratio (DSCR) remained above 4x during the last 3 fiscal years.
Going forward, ratings remain sensitive to maintenance of profitability, capitalization and cash flow coverage indicators while further improvement in liquidity profile will also remain a key consideration.
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Posted on: 2024-04-05T11:05:51+05:00
