Karachi, November 01, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Artistic Milliners (Private) Limited (AML). Long Term Rating of ‘AA-’ reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 14, 2018.
Assigned ratings take into account AML’s strong financial and moderate business risk profile. Business risk profile of the denim industry is supported by stable and growing demand for denim products. However, local and international expansion by major players is expected to keep pricing power and hence margins slightly under pressure. Given the favourable policies and incentives of the government on enhancing exports and imposition of duties on Chinese exports to USA, there is significant opportunity for denim players to enhance exports. Increased expansion by leading denim and non-denim textile players is also on account of favourable demand and expected increase in orders. AML is well positioned to tap this opportunity given the recently completed expansion in all three segments.
Assessment of financial risk profile incorporates healthy profitability indicators, strong liquidity profile and sound capitalization levels. Profitability of the company improved in the outgoing year on account of increasing sales volumes, higher average selling prices, improving gross margins (due to currency devaluation and enhanced operational efficiencies) and dividend income from subsidiary in the power sector. Liquidity profile of the company is considered strong in view of healthy cash flows, sizeable liquid assets carried on balance sheet and strong debt servicing ability.
Despite higher debt draw down to fund expansion in the spinning and garments division and increasing working capital requirements, leverage indicators remained at preceding year levels due to significant internal capital generation. Going forward, with limited debt drawdown and projected increase in equity base, leverage indicators are projected to improve. The assigned ratings remain dependent on maintaining projected financial indicators within benchmarks for the assigned ratings.
AML is one of the leading denim fabric and garment manufacturers and exporters with vertically integrated operations in Pakistan. During FY19, the company was amongst the top 5 exporters of the country. The company deals in manufacturing of yarn, denim fabric and denim garments. Over the years, the management has placed significant focus on sustainability initiatives. AML owns Pakistan’s first LEED (Leadership in Energy and Environmental Design) Certified Garment Factory.
Sales mix of the company is almost entirely export oriented with revenues comprising a mix of denim fabric and garments. During the outgoing year, AML completed expansion in its spinning and garment divisions. Going forward, the company plans to invest in a new processing unit for white fabric that will diversify sales. Besides textiles operations, projected annual dividend income from the subsidiary is expected to continue to support the company’s profitability and diversify revenue streams. Going forward, the company plans to further diversify in the renewable energy segment. Assigned ratings incorporate extensive experience of sponsors and strong franchise enjoyed by AML in the denim sector.
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