Press Release

VIS Reaffirms Entity Rating of Shahbaz Garments (Private) Limited

Karachi, April 16, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Shahbaz Garments (Private) Limited (‘SGL’ or the ‘Company’) at 'A-/A-2' (‘Single A-Minus/A-Two’). Medium to long term rating of 'A-' indicates good credit quality; protection factors are adequate. 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. Risk factors are small. Outlook on the assigned ratings remains Stable. Previous Rating action was announced on September 06, 2022.

Shahbaz Garments (Private) Limited (SGL), a subsidiary of Beltexco Limited headquartered in Hong Kong, specializes in manufacturing and distributing industrial gloves for both local and international markets. As a family-owned enterprise, with its ultimate parent company, Pangea Limited, located in Canada, SGL brings extensive experience and expertise to its field. With a legacy spanning over five decades, the Company has emerged as a prominent player of gloves manufacturing. Beyond gloves, SGL offers a diverse product portfolio including cotton yarn, technical yarn, and knitted fabric.

The assigned ratings reflect the medium business risk profile inherent in Pakistan's textile sector, characterized by exposure to economic cyclicality and intense competition. Performance within this sector is heavily influenced by broader economic conditions, making it susceptible to demand fluctuations driven by both domestic and international economic factors, particularly its reliance on exports. Additionally, supply-side risks such as local cotton crop production and dependence on imported raw materials expose the sector to considerable exchange rate risk.

Assigned ratings consider the Company’s business updates wherein SGL showcased revenue growth attributed to increased sales volumes and higher unit prices, leading to an improvement in gross margin in CY22. Despite facing finance cost pressures, the Company benefitted from interest income and foreign currency gains, resulting in strengthened bottom-line performance. During 9MCY23, the net sales experienced an increase of 8.7% compared to SPLY, primarily driven by higher unit prices, albeit a contraction in sales volumes owing to demand slowdown. The Company’s gross margin saw a slight deterioration due to rising raw material prices, fuel and energy costs. The operating and finance costs also increased amidst inflationary pressures and a higher monetary policy rate, consequently contracting the net margin. Going forward, the management anticipates a sustained surge in sales for the current calendar year, with margins expected to align with historical trends.

Assigned ratings take into account the Company’s financial risk profile, which exhibited favorable trend owing to improved net profitability in CY22, marked by improvement in Funds from Operations (FFO) and strengthed cashflow coverages, with Debt Service Coverage Ratio remaining above 3x since the past two calendar years. However, during 9MCY23, the Company faced bottom-line pressures as SGL’s cashflow coverages declined compared to SPLY. Nevertheless, higher internal cash generation and strategic debt management have contributed to an improved capitalization profile throughout CY22 and 9MCY23. Additionally, the ratings are underpinned by a healthy liquidity profile maintained consistently by the Company. Going forward, the ratings remain sensitive to improvement in profitability metrics and maintenance of capitalization indicators.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.


Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .