Press Release

VIS Assigns Positive Outlook to Artistic Apparels (Private) Limited

Karachi, March 03, 2022: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Artistic Apparels (Private) Limited (AAPL) at ‘BBB+/A-2’ (Triple B Plus/A-Two). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. Previous rating action was announced on November 16, 2020.

Assigned ratings continue to factor in the extensive sponsor experience and established operating track record of nearly three decades in denim business. Ratings also take into account moderate business risk profile supported by growing demand for denim products. The revision in rating outlook captures the improvement in production capacity, strong and continued growth in revenues and sustained gross margins. The overtime improvement in earning profile has translated into healthy growth in equity base. However, leverage indicators remain elevated due to increase in debt utilization levels. Overall liquidity profile is sound with some weakening in cash flow coverages during the ongoing year. On corporate governance front, room for improvement exists in terms of segregating ownership and management along with further strengthening of board composition. Ratings constrains include high client-wise sales concentration, weak net margins and elevated leverage metric vis-à-vis peers.

Around 40% increase in production capacity over the last two fiscal years largely pertained to installation of stitching machines along with other efficiency enhancement-related initiatives. Utilization levels also witnessed an upward trend due to sizeable jump in export orders. Given the same, the management planned to further increase the capacity by ~30% (from 8.5m to 11.0m pieces) for which a facility located in Korangi has been rented while machinery is being imported at a total cost of Rs. 400m; entire project cost is financed through a 10-year Islamic long term financing facility (ILTFF) at concessionary rates. The project is expected to come fully online in April’22.

Entire revenue is generated from export sales with major geographic concentration towards European regions; nonetheless, there are plans to tap the US market going forward. At present, denim garment exports dominate the sales mix with major chunk shared by trousers, jeans and shorts. The management has planned to diversify product mix through achieving gradual growth in non-denim segment along with the addition of knitted garments to the product portfolio in the medium term. Ratings remain dependent on continued maintenance of sound performance and financial indicators.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 203) or the undersigned (Ext: 201) at (021) 35311861-70 or email at info@vis.com.pk .


Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (May 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf

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