Press Release

VIS Reaffirms Entity Ratings of Al-Karam Towel Industries (Pvt.) Limited

Karachi, August 01, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Al-Karam Towel Industries (Pvt.) Limited (AKTI) at ‘A-/A-2’ (Single A Minus/A-Two). Medium to long-term rating of ‘A-’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in economy. Short term rating of ‘A-2’ indicates good certainty of timely payment supported by sound liquidity and company fundamentals. Access to capital market is good and risk factors are small. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on May 25, 2022.

Ratings are underpinned by AKTI’s 19-year track record in towel and terry production and export, vertically-integrated structure, renowned retailers as key customers, sound IT infrastructure utilizing an Oracle-based ERP system and dedication to eco-friendly manufacturing practices. Ratings also take note of recent capacity expansion efforts in the spinning and weaving divisions, leading to roughly 40% and 50% surge in installed capacity, respectively. The capex included installation of additional 13,200 spindles and 260 rotors at their existing spinning facility in Nooriabad, alongside introducing a complete in-house yarn dyeing unit. Additionally, a new weaving unit, featuring 48 air-jet looms, has been set up in Nooriabad.

Ratings reaffirmation reflects steady sales revenue growth, despite a recent dip in export volumes due to global demand slowdown. This growth is supported by a notable increase in local yarn sales and consistent rupee depreciation. While terry towel exports remain dominant in the sales mix, current fiscal year has seen an upturn in local sales ratio, particularly in the last quarter, primarily driven by a spike in yarn sales amidst regional shortages. Ratings also factor in the marked improvement in profitability margins over the review period. Cash flows have noted a positive trend while liquidity profile is adequate with slightly elevated working capital days. High-retained profits have played a significant role in supporting capitalization and keeping leverage metrics at manageable levels. Business risk profile takes into account industry-wide growth in exports in FY22; however, recent floods across the country, high-interest rate situation, inflationary pressures, higher electricity costs and demand slowdown in the current year pose risks to the sector over the medium term. The same is reflected in ~14% YoY decline in the country’s 10 months textile export proceeds (in value terms). Ratings are constrained by the current weak macroeconomic environment globally and locally.

Geographic sales mix shows concentration, with USA and UK remaining the primary export destinations, accounting for over 70% of exports. The rest is dispersed across regions such as Germany, Denmark, Canada, Georgia, Portugal, Greece, Saudi Arabia, among others. Client concentration also remains high, with top ten clients producing nearly three-fourth of total revenues. Ratings remain dependent on maintenance of margins, debt coverage, and leverage ratios.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 206) or the undersigned (Ext: 207) at (021) 35311861-4 or email at info@vis.com.pk



Sara Ahmed
Director

Applicable Rating Criteria: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Rating Scale and Definitions:
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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