Press Release

VIS Reaffirms Entity Ratings of Zephyr Textile Limited

Karachi, August 30, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Zephyr Textile Limited (ZTL) at ‘BBB+/A-2’ (Triple B-Plus/A-Two). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the 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 is ‘Positive’. The previous rating action was announced on June 30, 2021.
Ratings take into account moderate business risk profile of the industry supported by strong performance of the sector post pandemic, which has enhanced product profile and geographical footprint of the Company in the value -added segment. Assigned ratings factor in Company’s extension in the knitting segment, which is expected to further improve diversification in the revenue stream as well as contribute towards margin improvement. ZTL historically has remained focus on greige fabric and towel business; both of which have remained low margin competitive businesses. Ratings, however, remain sensitive to macroeconomic pressures including high inflation and risk of possible global slowdown.

Ratings also incorporate sound financial risk manifested by strong topline growth, enhancement of margins, and positive momentum in profitability, adequate liquidity and comfortable debt service coverages. Revenue growth has been primarily contributed by price increase. Client concentration also remains on the higher side. Sustainability of revenues and margins, going forward, remains uncertain with possible slowdown expected in global markets especially in towel segment towards the 2nd quarter of FY23. Maintenance of the same will remain important for ratings. Assessment of financial position reflects improvement in capitalization indicators of the Company on account of higher profitability. Gearing and leverage ratios depict a declining trend. Liquidity, however, remains adequate with metrics in line with the assigned ratings. Going forward, ratings remain underpinned on maintenance of gearing, realization of projected targets and incremental cash flow generation from new product line extension coupled with improvement in liquidity profile.

For further information on this rating announcement, please contact Ms. Syeda Batool Zehra Zaidi (Ext: 210) or the undersigned (Ext: 207) at 021-35311861-66 or email at info@vis.com.pk





Sara Ahmed
Director

Applicable rating criterion: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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