Press Release

VIS Maintains Entity Ratings of A.A. Spinning Mills Limited

Karachi, July 02, 2021: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of A.A. Spinning Mills Limited (AASML at ‘A-/A-2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings has been revised from ‘Rating Watch-Developing’ to ‘Stable’. The previous rating action was announced on April 27, 2020.

The ratings assigned to AASML take into account the company’s association with Ibrahim Group; one of the leading groups in Pakistan with sizable financial strength. Ratings are constrained by high cyclicality and competitive intensity of spinning industry coupled with volatility in cotton prices which translate into moderate to high business risk profile. On the other hand, holistically business risk profile of the textile industry is supported by stable and growing demand as US-China Trade disruption enhance sales given major buyers continue to diversify procurement. Ratings also incorporate sound financial risk manifested by significant improvement in margins & profitability indicators, declining trend witnessed in gearing indicators with limited reliance on long-term debt, sound liquidity and sizable debt service coverages. Further, owing to reduction in benchmark rates, the financing cost for the company has reduced, reflecting positively on the bottom line. However, the ratings remain sensitive to lack of revenue diversification and limited scale of operations. The management’s focus on expanding current operations with setup of new spinning unit with 50,000 spindles bodes well for the company in terms of reaping economies of scale. The capitalization plan of the expansion would need to be aligned with that existing capital structure and dovetailing of timely revenue from the same.

Given improvement in the company’s operational performance owing to pandemic led boom in textile sector during the period under review, the outlook assigned to AASML’s ratings has been revised to ‘Stable’. Even though concerns of successive waves of Covid-19 are present, strong order book of the industry for the ongoing year along with vaccine rollout has subsided business risk concerns. The ratings remain dependent on mitigation of cyclicality risk inherent in the spinning sector through maintenance of margins and cash flow generation, sustenance of gearing indicators at around current levels and realization of projected targets coupled with evolution of sector dynamics post ongoing pandemic.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 or email at .

Faryal Ahmed Faheem
Deputy CEO

Applicable rating criterion: Corporates (May 2019)

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