Press Release

JCR-VIS Reaffirms Entity Ratings of Sapphire Textile Mills Limited
 

Karachi, December 19, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Sapphire Textile Mills Limited (STML) at ‘A+/A-1’ (Single A Plus/A-One). Long Term Rating of A+ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of A-1 indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and risk factors are minor. Outlook on the assigned ratings remains ‘Positive’. The previous rating action was announced on January 30, 2018.

The assigned ratings incorporate the company’s diversified business risk profile with exposure in textile and power sectors along with a sizeable portfolio of marketable securities. Ratings also factor improvement in income from core operations with textile business posting healthy growth in profitability in FY18 and in the ongoing year. Leverage indicators and cash flow coverage of outstanding obligations are currently on the higher side but are expected to improve on the back of projected increase in profitability and net debt repayments over the rating horizon. Positive outlook on the assigned ratings capture the timeline improvement in revenues, as projected and successful commissioning of 3x50MW wind power project- Tricon Boston Consulting Corporation (Private) Limited. Materialization of dividend income along with projected improvement in financial indicators may result in upward push on ratings.

STML’s investment portfolio (short-term and long-term) represented around 45% of the total asset base at end-FY18. Around 52% of the investment portfolio relates to exposure in listed equities while investment in the power sector contributes 41% to the total investments at end-June’2018. Given sizeable exposure in the equity market, the company is exposed to market risk. Remaining investments are in related party group companies. Within textile operations, value-added finishing segment remains the key focus area for the management. With increasing focus towards the finishing segment, productivity and capacity utilization levels have improved on a timeline basis. Recent rupee depreciation and increased focus of the government on enhancing exports (through reducing cost of doing business and commitment for timely release of refunds and rebates) also bodes well for competitiveness of textile exports.

Assessment of financial risk profile incorporates improving profitability from the textile operations. However, overall profitability (before accounting for finance cost and taxes) was lower due to sizeable decline in capital gains from listed investments in FY18. Diversification in income streams is expected to witness improvement with dividend income from power and listed equity portfolio expected to contribute over one-third of STML’s operating profit. Financial profile is supported by sizeable equity base and liquid assets carried on the balance sheet which provides significant coverage against outstanding obligations. Moreover, with no major debt drawdown planned for expansion & investment related capex, capitalization indicators are expected to improve, going forward. Ratings remain dependent upon sustained profitability from textile segment, projected dividend payment from energy segment and containment of market risk in investments.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Javed Callea (Ext: 201) at 35311861-70 or fax to 35311872.



Jamal Abbas Zaidi
Advisor

Applicable Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-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.JCR-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.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-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 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited