Press Release

VIS Reaffirms Entity Ratings of Saya Weaving Mills (Private) Limited

Karachi, February 22, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Saya Weaving Mills Limited (SWML). 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, with sound liquidity factors. Access to capital market is good and risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on January 10, 2022.

Ratings reaffirmation incorporates SWML’s operating history of over three decades, considerable expansion in production capacities, robust revenue growth with healthy margins, sufficient cash flow coverages, and adequate liquidity and capital structure. Overall governance framework is sound with room for improvement in terms of increasing board size, addition of external members and segregating ownership and management. 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.

The capacity expansion initiative, which started in 2019 with acquisition of adjacent plot, is close to completion. The construction of new building (Unit-II) is complete, and the installation of machinery, including 109 looms (10 dedicated to terry division and the rest to fabric division), has already taken place. However, there are still 35 looms on hold due to restrictions on import LCs. The combined total number of looms in both units has reached 306, providing the company with increased production capacity. Moreover, in order to reduce reliance on gas-based energy, management initiated a 1MW solar power project, which is currently in the installation phase. This project is expected to go live by Mar’23, and management expects around 15% to 20% reduction in energy cost.

Net sales have more than doubled over the last two fiscal years, surpassing the Rs. 11b mark in FY22. The proportion of export to local sales has remained unchanged at 35:65. Currently, nearly three-quarters of exports are directed towards Europe and the rest is split between US and Middle East. Strong sales growth in these regions during the review period was noted due to recessionary trend in European markets. Improved earnings have led to a positive trend in cash flows and all-out retention continue to reinforce capital buffers. However, due to increase in debt levels, leverage indicators have trended upwards over the review period. The ratings remain contingent upon the maintenance of coverage and gearing indicators, going forward.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 206) 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

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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .