Press Release

VIS Assigns Initial Entity Ratings to J.K Spinning Mills Limited

Karachi, March 28, 2019: VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A-/A-1’ (Single A Minus/A-One) to J.K Spinning Mills Limited (JKSM). The medium to long-term rating of ‘A-’ signifies good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ signifies high certainty of timely payments; liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned ratings is ‘Stable’.

JKSM, a part of J.K Group, operates spinning, weaving and stitching divisions, and home textile offered as its key products. Majority shareholding is vested within the sponsoring family which is actively involved in the operations of the company. Net sales comprise a mix of local and export, as sales of yarn are primarily in the local market while sale of fabric products is majorly export oriented. Client concentration has been on the lower side while key export markets of the company have been Europe and USA. Capacity utilization of both segments has been on the higher side in line with increasing demand for yarn and home textile products. The company has enhanced its capacity in FY18 and is in the process of adding more spindles.

Overall profitability of the company has exhibited improvement mainly on account of higher yarn prices. With procurement of cotton and sale of yarn mainly emanating from local market, the vulnerability to fluctuations in forex rates is low. Also an integrated business profile reduces JKSM’s core reliance on cotton and yarn prices and places the company in a comfortable position. The overall profit margins of the company improved during FY18 on the back of favorable yarn and fabric prices, strategic cotton procurement, and moderate operational costs. Going forward, capacity enhancement is expected to boost JKSM’s competiveness and sales, which, in turn, would positively impact the overall profitability and cash flow generation.

Cash flows of the company have been on an increasing trend in line with the profitability of the company. Overall liquidity profile of the company 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. Current ratio of the company remains more than 1.0x, while trade debts and stock in trade are more than sufficient to cover short term borrowings. Equity base of the company has grown on a timeline basis on the back of higher profitability and moderate dividend payout. With increase in total debt levels of the company, leverage indicators have trended upwards but continue to remain at manageable levels. Maintaining leverage indictors and coverage in line with projections is considered important in terms of rating perspective.

Jamal Abbas Zaidi

Applicable Rating Criteria: 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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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