Press Release

VIS upgrades short term rating of Naveena Exports Limited

Karachi, April 08, 2019: VIS Credit Rating Company Limited (VIS) has upgraded the short term rating of Naveena Exports Limited (NEL) from ‘A-2’ (A-Two) to ‘A-1’ (A-One). The medium to long term rating has been maintained at ‘A-’ (Single A Minus). Outlook on the assigned ratings has also been revised from ‘Stable’ to ‘Positive’. The 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 payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. The previous rating action was announced on April 19, 2018.

The positive outlook assigned to the ratings incorporate enhanced operating performance and financial profile along with improvement in textile sector outlook given supportive government policies. As part of a restructuring initiative, non-textile investments on balance sheet are planned to be divested to Naveena Group (Private) Limited (Naveena Group) by end-FY20. The group structure will result in enhanced corporate governance and improved performance monitoring of investments. However, decrease in equity due to transfer of non-textile investments to Naveena Group, along with additional debt drawdown for funding BMR capex is projected to increase gearing levels. Post financial restructuring, achievement of projected growth in sales while sustaining competitive margins, along with maintaining leverage indicators within prudent limits would be credit positive.

Business risk profile is supported by stable and growing demand for denim fabric. However, local and international expansion by major players in the denim segment is expected to keep pricing power under pressure. Moreover, significant investment required by customers as part of sustainability initiative is expected to add to cost pressures for denim manufacturers. However, NEL relations & certification with leading brands and investment in new technologies are expected to support business risk profile. VIS expects demand for denim products to remain stable over the medium term which along with supportive policies of the government towards the textile sector and sizeable rupee depreciation are expected to bode well for competitiveness of the sector.

Assessment of financial risk profile incorporates strong sales growth, rising gross margins which stand at competitive levels in relation to industry peers, strong liquidity profile and rising equity base (3-yr CAGR of 16%) on account of profit retention. Around one-third of debt carried on the balance sheet is long-term in nature. Despite increase in equity base, additional debt undertaken has led to an increase in leverage indicators since last review.

For further information on this rating announcement, please contact the undersigned (Ext: 207) at 021-35311861-70 or fax to 021-35311872.

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

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