Press Release

VIS Reaffirms Entity Ratings of Indigo Textile (Private) Limited

Karachi, November 27, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Indigo Textile (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 November 05, 2018.

ITPL is a Private Limited Company with shareholding vested with Akhtar Group and Haji Khuda Bux Amir Umar. The Company is engaged in manufacturing and sales of denim fabric. Akhtar group specializes in the textile sector particularly denim fabric and garments and has diversified in the dairy and power sectors. Haji Khuda Bux Amir Umar group is engaged in the ginning, export, import, indenting of raw cotton and merchandising of cotton, blended yarns and other textile made ups since 1932. While sponsors have sound track record and carry significant experience in the textile industry, overall corporate governance framework at ATIL has room for improvement.

In line with growth in demand, capacity utilization has remained on the higher levels over the last few years. Going forward, the management plans to further increase its capacity with addition of looms; financing of the same is planned to be undertaken through a mix of debt and internal capital generation.

The assigned ratings reflect moderate business risk profile of the denim sector. Demand for denim fabric has a favorable outlook with growth largely emanating from international brands having control over the supply chain arrangement. Many denim garment manufacturers are pursuing backward integration to manufacture denim fabric themselves. Resultantly, expansion by local and international players is expected to keep pricing power and hence margins in check. Other key business risk factors include volatility in yarn prices and limited ability to pass on the same to the end consumer.
Financial profile of ITPL is supported by growing revenues and improved margins during the last two years. Net sales comprise a mix of direct and indirect exports; around half of the indirect exports are to an associated company. Client and geographic concentration in sales is on the higher side. Going forward, growth momentum in sales is expected to continue in view of increasing demand. However, gross margins and profitability may come under pressure over the short to medium term on account of cost pressures of inputs and competitive pressure on account of significant capacities coming online.

Liquidity profile of the company is considered adequate in view of sufficient cash flows in relation to outstanding obligations and manageable aging of trade debts. Debt carried on the balance sheet largely comprises short-term debt to fund working capital requirements and has increased on a timeline basis due to higher trade debts. Given the additional debt planned to be undertaken for expansion, future gearing levels will remain an important rating driver. Going forward, ratings are dependent on maintaining margins, leverage and cash flow indicators commensurate with the assigned ratings.

For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or the undersigned (Ext: 207) at (021) 35311861-66 or email at

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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