Karachi, November 18, 2019 (PPI-OT): VIS Credit Rating Company Limited has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Lucky Textile Mills Limited (LTML). Long Term Rating of ‘AA-’ denotes high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Short Term Rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’.
The assigned ratings reflect Company’s diversified balance sheet, sound operational infrastructure, favourable business risk dynamics and strong financial risk profile. Ratings also incorporate strong sponsor profile with LTML being a wholly owned subsidiary of YB Holdings (Pvt.) Limited. Yunus Brother’s Group has robust financial profile with diversified presence in sectors including power generation, building materials, real estate, textile, chemicals, pharmaceuticals, food, entertainment and automotive sectors. Ratings remain dependent on achievement of projected growth targets, maintaining strong financial profile and low leveraged capital structure.
LTML is engaged in manufacturing and exports of various kinds of textile products. The company enjoys strong franchise value and is recognized as a quality product manufacturer with product line ranging from bed sheets, comforters, duvets, quilts, pillow cases to curtains, table linens and apparels. US, UK, Germany and France are the major export markets constituting about three-fourth of the total export sales of the company. Clients include a mix of distributors, top-tier retailers and fashion brands. Although client wise concentration is witnessed in sales, this risk is partially mitigated due to long term association with existing clients.
The assigned ratings incorporate favourable industry dynamics as indicated by supportive government policies, improving perception (opening of visa regimes) and law and order situation and continuation of trend of gradual shifting of orders from other key competing countries on account of trade war between USA and China. Resultantly, management has embarked on capacity and efficiency enhancement across the value chain. Operational infrastructure including management information systems, IT infrastructure, and machinery remains key strength of the company.
Assessment of financial profile indicates strong profitability and liquidity profile coupled with healthy capitalization indicators. Net sales of the company have grown at a Compound Annual Growth Rate (CAGR) of 13.1% during the last three years. Rupee devaluation was the major driver behind increase in topline in FY19. Growth momentum in topline is projected to continue over the rating horizon. Profitability profile has strengthened during the last three years on the back of growth in topline, improved margins, and sizeable dividend income from investments.
Going forward, improvement in profitability will be a function of volumetric growth in sales and sustained margins. Liquidity profile is strong as evident from healthy cash flows and strong coverages. Despite debt draw down to fund expansion, cash flow coverages are projected to remain strong over the rating horizon. Low leverage indicators and conservative financial policy depicts strong capitalization profile. Maintenance of leverage in line with ratings benchmarks is considered important from ratings perspective.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan