Press Release

VIS Reaffirms Entity Ratings of Sunrays Textile Mills Limited

Karachi, September 28, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Sunrays Textile Mills Limited (SUTM) at ‘A-/A-1’ (Single A Minus/A-One). Long term entity rating of ‘A-’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, liquidity factors are excellent and supported by good fundamental factors. Risk factors are minor. Outlook on the assigned is ‘Stable’. The previous rating action was announced on August 22, 2022.

Ratings incorporates SUTM’s long standing association with Indus Group of Companies, which is a sizeable player in the country’s textile business with an annual turnover of over $300m. Within textile sector, Indus Group has over five decades of experience and operates through five entities. The group is primarily engaged in the business of cotton ginning, yarn spinning, greige fabric manufacturing and home textiles (primarily towel business). Principal activities of SUTM include trade, manufacture and sale of yarn. During FY22, SUTM made a long-term investment by purchasing 100% shares of Embee Industries (Private) Limited (EIL). The transaction was financed through surplus funds available with the Company.

Ratings takes into consideration the deterioration in the demand and supply dynamics of the textile sector owing to shortage of cotton crops, severe currency devaluation, heightened inflation and soaring policy rates over the rating review period. Assigned ratings also take into account topline growth during FY21 and FY22 largely driven by higher selling prices of yarn. However, during 9MFY23, revenue of the Company was 4% lower vis-à-vis 9MFY22. Export sales continue to account for a major proportion of revenue, with China being the main export destination followed by Turkey. While gross margins of the Company increased during FY22 due to inventory gains, the same plunged during 9MFY23 on account of increase in prices of imported raw material led by currency devaluation, higher local cotton prices and elevated fuel expense. Consequently, net margins of the Company also narrowed in 9MFY23 as a result of subdued gross margins, and elevated finance and tax costs. The decline in the Company’s profitability has also translated into the weakening in the cash coverage profile of the Company; however, the liquidity indicators continue to remain at adequate levels. Albeit, remaining at comfortable levels, gearing and leverage indicators have depicted an uptick on the back of an increase in the drawdowns of short-term and long-term borrowings to finance expansion and working capital needs. Given no plans for expansion, and projected improvement in profit generation, management expects capitalization levels to remain within similar ranges over the rating horizon. Given the challenging market dynamics and pressure on margins, maintaining financial ratios at levels that are commensurate with the benchmarks for the assigned ratings will be important going forward

For further information on this rating announcement, please contact Ms. Asfia Amanullah (Ext: 212) or the undersigned (Ext: 207) at (021) 35311861-64 or email at info@vis.com.pk.



Sara Ahmed
Director

VIS Entity Rating Criteria: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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