Press Release

JCR-VIS Assigns Initial Entity Ratings to Artistic Denim Mills Limited

Karachi, May 7, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-1’ (Single A Minus/A-One) to Artistic Denim Mills Limited (ADML). Outlook on the assigned ratings is ‘Stable’.

ADML commenced operations in 1993 as a denim fabric manufacturer. In 2008, the company attained the status of a vertically integrated denim player encompassing spinning, weaving and denim garment operations at a composite unit in Korangi Industrial Area, Karachi, Pakistan. Capacity utilization of all the segments has been increasing on a timeline basis with revenues largely comprising exports generated through both fabric and garment division. Fabric sales of the company are concentrated in Pakistan (nominated sales), Bangladesh and Turkey while major markets for garments include Europe and USA. Given the company’s status as the only listed company in the denim sector, transparency and disclosures compare favorably vis-à-vis other peers in the denim sector.

The ratings incorporate high business risk profile of the denim sector. While demand for denim fabric and garments is projected to grow, 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. ADML’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.

Assessment of financial risk profile incorporates the company’s strong capitalization as reflected by low leveraged capital structure and sound liquidity indicators as evident from healthy cash flows in relation to outstanding obligations. While gross margins have continued to decline overtime, profitability has depicted improvement in the ongoing year on account of volumetric growth in sales in existing markets. Despite additional borrowings for undertaking planned expansion, overall debt servicing ability is considered strong. Going forward, maintaining financial indicators is considered important from a ratings perspective.

For further information on this rating announcement, please contact the undersigned (Ext: 201) 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, VIS Credit Rating Company Limited 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.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.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.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 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited