Press Release

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

Karachi, November 05, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Indigo Textile (Private) Limited (ITPL). Long term rating of A- reflects good credit quality, adequate protection factors, and risk factors may vary with possible changes in the economy. Short term rating of A-2 denotes good certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings is ‘Stable’.

ITPL was established in 2006 as a Joint Venture between Akhtar Group and Haji Khuda Bux Amir Umar. The Company is in the business of denim fabric manufacturing. Akhtar group specializes in the textile sector particularly denim fabric and garments and has diversified in the dairy and power sectors. Haji Khuda Bux Amir Umar group is engaged in the ginning, export, import, indenting of raw cotton and merchandising of cotton, blended yarns and other textile made ups since 1932. While sponsors have extensive experience in the textile sector, overall corporate governance framework has room for improvement.

The company enhanced its capacity in FY16 and has reported high capacity utilization levels over the last few years. Going forward, the company plans to gradually increase its production capacity through addition of looms; financing of the same is planned to be undertaken through a mix of debt and internal capital generation. Net sales comprise a mix of direct and indirect exports; around half of the indirect exports are to an associated company. Client and geographic concentration in sales is on the higher side.

The assigned ratings incorporate growing business risk profile of the denim sector. Demand for denim fabric is projected to grow largely from limited international brands having control over the supply chain arrangement. This along with expansion by major local and international players is expected to keep pricing power and hence margins under pressure. Other key business risk factors include volatility in yarn prices and limited ability to pass on the same.

Financial profile of ITPL is supported by growing revenues and improved margins during FY18. Going forward, gross margins and profitability may face headwinds on account of reduction in rebate on exports and competitive pricing pressures. Liquidity profile is considered adequate in view of sufficient cash flows in relation to outstanding obligations, satisfactory debt servicing ability and aging of trade debts which remain within manageable levels. Equity base of the company has grown at a CAGR of 18% over the past three years on account of profit retention. Debt carried on the balance sheet largely comprises short-term debt to fund working capital requirements and has increased on a timeline basis due to higher trade debts. Given the additional debt planned to be undertaken for expansion, future gearing levels will remain an important rating driver. Going forward, ratings are dependent on maintaining margins, leverage and cash flow indicators commensurate with the assigned ratings.

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

Jamal Abbas Zaidi

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