Press Release

VIS Assigns Initial Entity Ratings to Bismillah Textile Limited

Karachi, September 08, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to Bismillah Textiles Limited (BTL). Long-term rating of ‘BBB+’ denotes adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short-term rating of ‘A-2’ signifies good certainty of timely payment coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.
Ratings assigned to BTL take into account the medium risk profile of the company underpinned by its presence in the export oriented value-added textile segment, sizable control on quality maintenance coupled with extensive sponsor experience and established operating track record of over four decades in textile business. Ratings also reflect long-standing business relationships with leading international brands and growing demand of home-textile products. Further, the recent rupee devaluation positively impacted financial results for the review period. Prospects of the industry are strong going forward; however, rising cost of doing business, inflationary pressures coupled with rising commodity prices and onset of monetary tightening regime is likely to impact profitability across the entire textile sector, going forward. Furthermore, ratings draw comfort from the recent increase in production capacities of the company to cater to increasing demand which are expected to support profitability and yield operational efficiencies going forward.
Assessment of financial risk profile encapsulates revenue growth in the last two years post onslaught of pandemic; however, in line with relatively low gross and net margins the subsequent translation of the growth in revenue into profitability metrics remained nominal. Although gross margins improved slightly during the outgoing year in line with higher average price of the entire product portfolio coupled with inventory gains, the same continue to be on a lower side in comparison to peers catering to export markets. With increasing interest rate environment and increased working capital requirements amidst rising commodity prices, maintenance of profitability indicators is considered important from a ratings perspective. In line with higher revenues and margins recorded in the outgoing year, BTL’s liquidity position improved and is considered sound on account of sufficient cash flow generation in terms of outstanding liabilities. Moreover, debt servicing levels remained comfortable despite increased reliance and procurement of long-term borrowings in recent years to fund capacity expansion initiatives. Similarly, leverage indicators have increased nominally on a timeline basis due to debt drawdown to finance expansion in the weaving and processing segments; while the same still remain within manageable levels and compare favorably to industry averages. Going forward, capitalization metrics are expected to strengthen with profit retention, considering that no addition to the quantum of debt is projected in the medium term. The ratings remain dependent on improvement of margins, realization of projected targets, incremental cash flow generation from recent capital expenditure, mitigation of client-concentration risk and maintenance of leverage indicators.
For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at info@vis.com.pk .


Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Corporates (August 2021)

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