Press Release

JCR-VIS assigns Initial Ratings of Al-Karam Towel Industries (Private) Limited

Karachi, December 17, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Al-Karam Towel Industries (Private) Limited (AKTI). The long term rating signifies good credit quality with adequate protection factors. Risk may vary slightly from time to time because of economic conditions. Short term rating of ‘A-2’ depicts good certainty of timely payment where liquidity factors are sound and good access to capital markets. Outlook on the assigned ratings is ‘Stable’.

Assigned ratings of AKTI take into account the company’s market position amongst top three players of the towel industry. Revenue base of the company has depicted growth at a CAGR of 20% over the past two years with majority of total sales revenue comprising direct exports. Growth in revenue base was largely a function of both higher volumes sold and increase in average yarn prices. Business risk is considered to be on the higher side given the greater concentration (client and geographic) in sales. Ratings also incorporate sound financial risk profile as manifested in the historically improving profitability profile. Similar to other private limited companies, governance and policy framework of the company depict significant room for improvement.

Higher profitability has resulted in healthier cash flow generation; nonetheless, higher utilization of borrowings reduced debt servicing coverage and Funds from Operations (FFO) in relation to long-term debt multiples of AKTI. In view of higher yarn prices incurred in the previous years, the company plans to reduce the dependence of procuring yarn from local market through this project. As a result, management has planned to integrate a spinning unit along with AKTI’s weaving facility. Once the project starts functioning, management anticipates increasing its FFO levels to reach the Rs. 1b mark resulting in improved liquidity indicators. Rating will remain dependent upon materialization and smooth integration of the spinning unit within targeted performance and financial indicators.

While total debt levels of the company increased to fund its operations, leverage indicators remained range bound within manageable levels. With a higher quantum of short term financing availed during the years; gearing increased on a timeline basis. However, both gearing and leverage indicators remained comfortable below 1.0x criterion. Moreover, with higher utilization in long term borrowings, the company projects to completely taper off its utilization of short term borrowings.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) or Ms. Muniba Khan (Ext: 214) at 35311861-70 or fax to 35311872.

Jamal Abbas Zaidi

Applicable 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