Press Release

VIS Assigns Initial Entity Ratings to Shahbaz Garments (Private) Limited

Karachi, May 02, 2019: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B+/A Two) to Shahbaz Garments (Private) Limited (SGL). Outlook on the assigned ratings is ‘Stable’. The long-term rating of ‘BBB+’ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital market is good. Risk factors are small.

Incorporated in 1972 as a private limited company, SGL is engaged in manufacturing and sale of various types of industrial gloves, along with fabric and yarn.

The assigned ratings take into account moderate business risk profile, improving profitability and adequate cash flow generation to service outstanding debt obligations. The company provides a complete range of industrial gloves, which provides a competitive edge over small scale competitors. However, inherent cyclicality of cotton price remains a key driver in performance of the spinning segment.

Topline of the company has increased at a Compound Annual Growth Rate (CAGR) of 12.5% in the period from end-2016 to end-2018. Growth in sales was primarily a function of increase in product prices with the volumes remaining stagnant on timeline basis. Although approximately two third of the company’s sales are geared towards the export market, local sales have been the major growth driver in topline during the last two years. Client wise concentration in sales is considered to be on the higher side, with a sizeable proportion of sales generated through related parties. Ratings incorporate continuity in sales to related parties in future. Going forward, the management is projecting a double digit growth in sales aided by expansion in capacity.

Profitability witnessed a considerable increase in 2018 owing to focus on higher margin products, favorable cotton procurement strategy and production efficiencies coupled with favorable government policies to facilitate exports. Recent currency depreciation has also contributed positively to company’s profitability.

Liquidity profile of the company is considered adequate in view of sufficient cash flows in relation to outstanding obligations. Equity base of the company has witnessed a growth on account of profit retention and conversion of long term payable to related parties as advance against issues of shares. Leverage indicators of the company have declined owing to decline in total debt coupled with increase in equity. Going forward, the leverage indicators may witness an increase to fund expansion in capacity; however, the same are expected to remain at manageable level.

The ratings are dependent on the company's ability to sustain its business risk profile along with continuation of growth in profitability. At the same time, prudent management of working capital needs and maintaining adequate debt service coverage remain critical. Improvement in capitalization and leverage indicator coupled with growth in profitability will be credit positive.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Narendar Shankar Lal (Ext: 203) 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 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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