Press Release

JCR-VIS Assigns Initial Entity Ratings to Soorty Enterprises (Private) Limited

Karachi, March 22, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Soorty Enterprises (Private) Limited (SEL). Outlook on the assigned ratings is ‘Stable’.

SEL is one of the leading denim fabric and garment manufacturers in the country with vertically integrated operations. The company commenced its operations in 1984 as a denim garment manufacturer and backward integrated operations through diversifying in the spinning and weaving segment. Sponsors have over 3 decades of experience in the textile sector with extensive experience in denim fabric and garment segment. SEL operates through various units at different locations in Landhi and Korangi, Karachi and Nooriabad Pakistan, comprising spinning, denim weaving, garments and washing units. The Company also has international presence through a subsidiary in Bangladesh, a marketing company in United Arab Emirates, a Research, Development and Design Office in Amsterdam, Netherlands and a Product Development Center in Turkey. Recently, the company has diversified in the industrial gases segment while diversification initiatives in the power sector are in the pipeline. Moreover, liquid investments held on balance sheet support income streams.

Business risk profile is supported by stable and growing demand for denim fabric and garments. However, local and international expansion by major players is expected to keep pricing power and hence margins under pressure. Moreover, significant investment required by customers as part of sustainability initiative is expected to add to cost pressures for denim manufacturers. Despite diversification plans, SEL’s operations are currently 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. Therefore keeping pace with rapid changes in fashion trends is considered important. JCR-VIS expects demand for denim products to remain stable over the medium term. Current level of margins which compare favorably to other leading textile players in the country also supports assessment of overall risk profile of SEL.

Financial risk profile of the company incorporates healthy profitability indicators, robust liquidity profile, and conservative financial policy as reflected by a low leveraged capital structure. JCR-VIS expects gross margins to remain under pressure on account of increasing competition. Quantum of future profits will depend on volumetric growth in sales post capacity expansion. Liquidity profile of the company is considered strong in view of healthy cash flows in relation to outstanding obligations. Equity base of the company has grown at a healthy pace over the last five years due to profit retention. Debt carried on the balance sheet largely comprises short-term debt to fund working capital requirements. Given the company’s expansion plans, leverage indictors will increase slightly but are projected to remain in line with the benchmarks for the assigned ratings.

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

Mr. Javed Callea

Applicable Rating Criteria: Industrial Corporates (May 2016)

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 2018 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