Press Release

VIS Maintains Entity Ratings of Quality Textile Mills Limited

Karachi, December 30, 2022: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of ‘BBB/A-2’ (Triple B /A Two) assigned to Quality Textile Mills Limited (‘QTML’ or ‘the Company’). The long-term rating of ‘BBB’ reflects adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short Term Rating of A-2 indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. Previous rating action was announced on December 30, 2021.
Incorporated in 1988, the principal activity of the Company is manufacture and sale of yarn. QTML is an ISO certified cotton spinner, and its plant has 25,104 spindles. During FY22, 1,200 rotors were installed as part of capacity enhancement plan, offering greater flexibility in production. Revision in rating outlook capture the economic weakening domestically and internationally, reflected in deterioration in financial risk profile in the ongoing year with the company reporting net losses, reduced cash flow coverage against outstanding obligations, and elevated leverage levels due to extended cash conversion cycle.
Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, rising interest rates, inflationary pressures, and higher electricity costs pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally. Hence, meeting projected growth targets and maintaining financial risk profile will be important for ratings.
Assessment of financial risk profile for FY22 incorporates improvement in topline of QTML owing primarily to a rise in selling price of yarn. Profitability indicators have depicted improvement on a timeline basis; however maintaining the same in lieu of current subdued market dynamics will be important. Cash flow coverages against outstanding obligations and debt service coverage ratio has reported a downward trend on a timeline basis due to extended cash conversion cycle and elevated debt levels to finance expansion and working capital requirements. Hence, capitalization indicators also witnessed an upward trend. Going forward, ratings will be dependent on improvement in profitability indicators and maintaining cash flows at adequate levels for debt servicing.
For further information on this rating announcement, please contact the undersigned (Ext. 201) or Ms. Asfia Aziz (Ext: 212) or at 021-35311861-70 or email at info@vis.com.pk.




Sara Ahmed
Director

VIS Entity Rating Criteria: Corporates - August 2021
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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