Press Release

VIS Revises Short Term Rating of Rajby Textiles (Private) Limited

Karachi, June 08, 2022: VIS Credit Rating Company Limited has downgraded entity ratings of Rajby Textiles (Private) Limited (RTPL) to ‘A-/A-2’ (Single A Minus/A-One) from ‘A-/A-1’ (Single A Minus/A-One). Outlook on the assigned ratings is ‘Stable’. Long-term entity rating of ‘A-’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes 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, while risk factors are small. Previous rating action was announced on June 03, 2021.

The assigned ratings incorporates extensive experience of sponsors, moderate business risk profile, and satisfactory liquidity coverages against obligations. Short-term ratings have been revised on account of extended cash conversion and lower current assets coverage against short-term liabilities. Business risk mainly arises from the volatility in yarn prices, which affects the gross margins of the sector. During FY21, the industry showed signs of recovery as the level of global consumer spending gradually went up, after COVID-19 induced lockdowns in FY20.

Topline of the Company expanded by 19% YoY in FY21 mainly attributable to volumetric growth. The growth momentum continued in the ongoing year. Gross margins also went up in FY21 led by inventory gains; however, slightly declined in the ongoing year due to rising raw material costs. However, net margin followed a pattern of persistent improvement on the back of lower finance cost in FY21 and one-off exchange gain in the ongoing year. With the projected growth in revenues, overall profitability profile is expected trend upwards; however, rising interest rates may cause a drag on the overall profitability profile.
In line with the increase in bottom-line, improvement was observed in cash flow coverage indicators on a timeline basis. Expected tightening of credit policy of customers shall further strengthen the liquidity profile. Leverage indicators have gone up over the period, as the level of short term borrowings rose by a significant amount to finance the working capital needs. Going forward, capitalization metrics are expected to strengthen with profit retention, considering that no significant addition to the quantum of debt is projected. The assigned ratings remains dependent on the maintenance of financial indicators in line with the thresholds for the assigned rating.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk.




Javed Callea
Advisor

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

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