Press Release

JCR-VIS Assigns Initial Ratings to A.A. Spinning Mills Limited

Karachi, September 17, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A-Minus /A-Two) to A.A. Spinning Mills Limited (AASML). Outlook on the assigned ratings is ‘Stable’.

AASML is a mid-sized spinning unit involved in manufacturing of yarn. Shares of the company are held by the sponsoring family which is actively involved in the operations of the company. The assigned ratings take into account association of AASML with Ibrahim Group, a large conglomerate with presence in textile and financial services. Overall profitability of the company has recently showcased improvement on account of higher yarn prices. With procurement of cotton and sale of yarn mainly emanating from local market, the company vulnerability to fluctuations in forex rates is low. AASML is in process of expanding its spinning operations. In addition to higher volumetric production leading to increase sales revenue, spinning unit-II is expected to yield diversification in product line and cost reduction. The ratings are largely constrained by vulnerability of the spinning sector to raw material prices. Any material delays in the implementation of expansion plan or unfavorable changes in foreign exchange market leading to increase in machinery cost would have negative on impact ratings.

AASML exhibited a marginal improvement in net revenue during FY18 despite exiting from low-margin viscose trading business. The favorable trend in yarn prices contributed towards notable improvements in profit margins during FY18. Spinning unit-II is expected to come online in June 2020; the scale and production efficiency emanating from spinning unit-II are expected to positively impact the overall margins. Overall cash flows generation has depicted steady improvements over the past three years mainly owing to increasing trend in profitability. Debt service coverages have remained adequate and are projected to remain sound, going forward.

With expanding equity base and decrease in borrowings on a timeline basis, gearing and debt leverage indicators have shown improvement. The declining trend in gearing is projected to increase slightly by end-FY20 on account of procurement of long-term debt for the financing of spinning unit-II. However, the issuance of fresh equity is likely to partially offset the impact of expected increase in gearing.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.



Javed Callea
Advisor

Applicable rating criterion: Industrial Corporate (May, 2016)
http://jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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