Press Release

VIS Reaffirms Entity Ratings of Akhtar Textile Industries (Private) Limited

Karachi, November 27, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Akhtar Textile Industries (Private) Limited (ATIL) at ‘A-/A-2’ (Single A Minus/A-Two). The long-term rating of ‘A-’ signifies good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. Short term rating of ‘A-2’ depicts good certainty of timely payment. Liquidity factors and company fundamentals are sound with good access to capital markets. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on June 28, 2018.

Incorporated in 1985, ATIL is engaged in the business of manufacturing and exports of denim garments. The company is a part of Akhtar Group of Companies which is a family owned group with specialization in the textile sector particularly denim fabric and garments along with diversified interests in the dairy and power sectors.

The assigned ratings reflect moderate business risk profile of the denim sector. Demand for denim garments has a favorable outlook but cost pressures pertaining to input prices and competitive pressures on account of international expansion by major players are expected to keep pricing power and hence margins in check. Moreover, demand by customers for adherence to environment friendly practices may require additional investment by the denim manufacturers, thereby further exacerbating the cost pressures. Given the company’s exposure to the denim sector, any change in demand pattern or other industry specific factors may impact business risk profile of the company. However, management believes that ATIL is positioned to meet change in demand patterns due to its focus on research and development.

Net sales of the company have depicted upward trajectory on timeline basis on account of rupee devaluation and volumetric growth. However, sales to a single renowned client “Levi’s” constitute majority of the export sales. Business risk of the company is on the higher side given the greater concentration (client and geographic) in sales. While client concentration is significant, comfort is drawn from long term association with the client. Credit risk against the client is mitigated due to secured payment arrangement by a reputable third party.

Financial risk assessment indicates that gross margins have improved in FY18 and 9M’FY19 due to rupee devaluation. Going forward, gross margins are expected to remain under pressure over the short to medium term on account of increase in denim fabric prices due to shortfall in domestic cotton crop production. Improvement in gross margins translated to improvement in net profitability of the company. Liquidity profile is considered adequate in view of sufficient cash flows in relation to outstanding long-term obligations but mismatch is observed on the balance sheet with short-term borrowings being utilized to fund non-remunerative loans and advances to associate companies. Leverage indicators have also increased owing to utilization of short term borrowings to support associate companies. Going forward, leverage indicators are expected to increase slightly in view of additional borrowings to fund capex but are expected to remain at manageable levels. Maintaining leverage indicators within benchmarks for the assigned ratings is considered important. Ratings are constrained by existing corporate governance framework of the company, which depicts room for improvement.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Narendar Shankar Lal (Ext: 203) or at 021-35311861-71 or fax to 021-35311872-3.

Jamal Abbas Zaidi

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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