Press Release

JCR-VIS Assigns Initial Entity Ratings to Akhtar Textile Industries (Private) Limited

Karachi, June 28, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Akhtar Textile Industries (Private) Limited (ATIL). Outlook on the assigned ratings is ‘Stable’.

ATIL was incorporated in 1985 and is engaged in the business of manufacturing and exports of denim garments. The company belongs to the Akhtar Group of Companies which is a family owned group with specialization in the textile sector particularly denim fabric and garments with diversification in the dairy and power sectors.

ATIL has consistently increased its production capacity over time. Capacity utilization levels of the company have increased on a timeline basis; however, the production reduced during FY17 due to restructuring of ATIL’s production facilities. Subsequently, utilization levels recovered in nine months of the ongoing year. Net sales of the company largely comprise export sales to clients in the US with concentration in sales to renowned single client “Levi’s”. Business risk of the company is on the higher side given the greater concentration (client and geographic) in sales. However, comfort is drawn from the length of association of the largest client with ATIL.

The assigned ratings incorporate high business risk profile of the denim sector. While demand for denim 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. ATIL’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. As per management, ATIL is positioned to meet change in demand patterns with focus on research and development and prospective client pipeline besides existing clients catered by the Company.

Financial risk analysis indicates that gross margins of the company witnessed deterioration during FY17 on account of lower sales volume, sales prices and increase in cost of raw material procured. However, the same has depicted improvement in the ongoing year due to volumetric growth in sales. Going forward, gross margins are expected to remain under pressure over the short to medium term on account of pressure on prices (due to significant capacities coming online). Capitalization indicators of the company are considered sound with stable equity growth and manageable gearing levels. Despite additional borrowings for undertaking planned expansion, overall debt servicing ability is considered sufficient. Liquidity profile of the company is considered adequate in view of sufficient cash flows in relation to outstanding obligations, satisfactory debt servicing ability and adequate aging profile of trade debts. Given the trend of current ratio, liquidity management is considered important from ratings perspective going forward.

Ratings also take into account constrained corporate governance framework of the company.

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

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 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