Press Release

VIS Credit Rating Company Reaffirms Entity Ratings of Soorty Enterprises (Private) Limited

Karachi, May 30, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Soorty Enterprises (Private) Limited (‘SEL’ or ‘the Company’). Long Term Rating of ‘AA-’ reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on May 24, 2021.

Assigned ratings take into account SEL’s position as one of the leading denim fabric & garment manufacturers in the country with vertically integrated operations, and international presence. As of FY21, SEL was the fourth largest exporter of Pakistan. The ratings take into account business risk of denim sector and regional & counterparty concentration inherent in SEL’s revenue base. Ratings also incorporate the Company’s satisfactory operating track record across all three segments. Reaffirmation of ratings incorporates moderate business risk and strong financial risk profile.

In FY21, the Company posted strong topline growth, subsequent to experiencing slow growth in FY20, which was mainly attributable to pandemic-induced slowdown. Growth in FY21 was mainly a product of quantitative growth in offtake. SEL’s revenue base is pre-dominantly export-centric, with the same comprising ~92% of sales as of FY21. In line with peers in the textile industry, SEL’s gross margin improved in FY21 mainly as a result of inventory gains emanating from commodities Supercyle 21. The Company’s net margins also depicted notable improvement on the back of higher operational profitability and other income.

Strong growth in revenues translated in growth in cash flows and hence a strong debt servicing capacity. As of June’21, the FFO to Debt implies full debt repayment with just 3 year FFO. Current ratio has remained consistently above 1x, supporting the short term rating assessment of SEL. Furthermore, coverage of short term debt by stock of trade debts and inventory is considered adequately high. The cash conversion cycle has posted improvement in FY21 owing to reduction in inventory days.

The Company’s debt utilization remains conservative, as reflected by the gearing & leverage levels. The Company’s debt is almost entirely composed of financing under SBP’s concessionary debt financing scheme. Furthermore, the Company has sizable liquidity available on the balance sheet, which has largely been placed in money market mutual funds. Inclusive of dividend income, income from financial assets has contributed 19% of the Company’s operating profit for FY21, which translates in a diversified business risk profile. The assigned rating remains dependent on maintenance of business and financial risk metrics in line with the benchmarks for the assigned rating.

For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA (Ext: 216) or the undersigned (Ext. 207) at 021-35311861-70 or email at info@vis.com.pk.




Sara Ahmed
Director

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

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .