Press Release

JCR-VIS Reaffirms Entity Ratings to Rajby Textiles (Private) Limited
 

Karachi, December 29, 2017: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Rajby Textiles (Private) Limited (RTPL) at ‘A-/A-1’ (Single A Minus/A-One). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on October 27, 2016.

The assigned ratings to RTPL take into account extensive experience of the Rajby group in the textile sector (over 4 decades) and in the denim manufacturing business. Revenues of the company comprise a mix of sales to associated company - Rajby Industries (RI), exports (South Asian and European Markets) and local non-Rajby sales. In order to cater to growing demand and to further diversify customer mix, the company has recently completed its expansion doubling its production capacity. Management expects proportion of export sales to grow with increased marketing focus towards the segment.

Business risk profile is supported by stable and growing demand for denim fabric. This is reflected in local and international players enhancing garment manufacturing capacity to cater to the growing demand. However, increased competition on the local and international front is expected to keep pricing power and hence margins under pressure. In the backdrop of sizeable expansion, competitiveness vis-à-vis other key international markets will be tracked, going forward. The company’s operations are also concentrated with exposure entirely to the denim industry which might significantly impact business risk profile in case of change in demand patterns or any other industry specific factors. JCR-VIS expects demand for denim products to remain strong over the medium term. Other key business risk factors include efficient procurement of yarn and weakening in law and order situation.

Assessment of financial risk profile incorporates adequate liquidity, profitability and capitalization indicators. While cash flows in relation to outstanding obligations have weakened and gearing indicators have trended upwards, they are projected to continue to remain within benchmarks for the assigned ratings. Future trend with respect to leverage indicators will depend on funding mix for the proposed expansion in the spinning division and quantum of internal capital generation. Going forward, gross margins are expected to decline on account of lower average selling prices and finance cost is projected to increase due to higher working capital requirements post expansion. However, profitability is expected to grow on the back of volumetric increase in sales (sales during first quarter have increased by 61% vis-à-vis corresponding period), negligible tax charges and decline in finance cost in FY19 due to higher ERF limits on the back of growth in export sales. Resultantly, cash flow metrics of the company are projected to improve.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) or the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.




Jamal Abbas Zaidi
Advisor

Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited