Press Release

VIS Assigns Initial Rating to Z.A. Corporation (Pvt.) Limited

Karachi, October 31, 2019: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to Z.A. Corporation (Pvt.) Limited (ZAC). The medium to long-term rating of ‘BBB’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned ratings is ‘Stable’.

ZAC is a newly established medium-sized spinning unit located in Faisalabad. Shareholding of the company is vested with Sheikh Danish Ali who is actively involved in day to day affairs of the company. The assigned ratings take into account growth in revenue and positive bottom line after commencement of commercial operations in October 2017 and subsequent enhancement of production capacity in December 2018. Product portfolio comprises viscose and cotton yarn, and unregistered persons account for majority sales, however, the company manages the counterparty risk by making sales on cash/advance basis. The company registered sizeable growth in revenue during FY19, driven largely by increase in volumetric sales of viscose and cotton yarn, with viscose accounting for three-fourth of total sales. However, as the company is largely dependent on imported raw materials, slight contraction in gross margin was recorded during FY19 due to rupee depreciation despite modest increase in selling price.

Underpinned by healthy cash flows generation, the ratings draw comfort from adequate debt service coverage. However, liquidity indicator in terms of current ratio is around the minimum threshold level. The increase in gearing and debt leverage was witnessed during the period under review on account of elevated working capital requirements as the company made further enhancement in production capabilities and entered its first full-year of production cycle. Ratings are constrained by vulnerability of the spinning sector to raw material prices, foreign exchange risk, and any adverse changes in the regulatory duties structure. The ratings are sensitive to any considerable change in profitability, debt service coverage and leverage indicators.

For further information on this rating announcement, please contact undersigned (Ext: 201) or Mr. Maimoon Rasheed at 021-35311861-70/ 042-35723411 or fax to 021-35311872.

Javed Callea

VIS Entity Rating Criteria Corporates (May 2019)

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 .

VIS Credit Rating Company Limited