JCR-VIS Assigns Initial Entity Ratings to Orient Textile Mills Limited

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JCR-VIS Assigns Initial Entity Ratings to Orient Textile Mills Limited

September 28, 2018

Karachi, September 28, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB/A-3’ (Triple B/A-Three) to Orient Textile Mills Limited (OTML). Outlook on the assigned ratings is ‘Stable’. OTML, a weaving unit, was incorporated in 1986 and is primarily engaged in the manufacturing and sale of textile and related products. The company is a part of Ebrahim Group of Companies, which is a family owned group with specialization in the textile sector. Other related concerns in the group are engaged in bottling and dairy sectors.

Assigned ratings take into account extensive experience of sponsors in the textile sector, improving profitability and adequate debt servicing capability of the company. Ratings are constrained by high leverage indicators vis-a-vis peers, low capital base and concentration in sales.

The company has witnessed an increase in the installed capacity during the past few years primarily on account of addition and overhauling of looms, with ones which operate at higher speeds. On average basis, capacity utilization of the company continues to remain on the higher side given the sizeable quantum of production orders as well as provision of weaving services to third parties. Gross sales of the company largely comprise export sales to clients primarily based in Europe. Resultantly, sizeable concentration (client wise and geographic) is witnessed in sales. However, comfort is drawn from long term association with clients.

OTML had posted net losses in the period from FY15 to FY17, as gross profit was insufficient to cover operating expenses. However, trend in profitability has been positive as the quantum of loss has been decreased on a timeline basis and the company posted profit for the first time in FY18. Assigned ratings incorporate the improvement in profitability of the company on a timeline basis.

Profitability of the company has grown on the back of improvement in gross margins. Greater contribution of higher value added products in overall sales and replacement of old looms with more efficient new looms contributed to an increase in margins during the last three years (FY16-FY18). Management expects sales of the company to remain at similar levels going forward.

Liquidity profile of the company is considered adequate in view of sufficient cash flows in relation to outstanding obligations. Equity base of the company is supported by sizeable long term loan from associated undertaking. However, overall equity base continues to remain on the lower side vis-a-vis peers.

On the other hand, gearing and leverage ratios of the company are on the higher side compared to peers due to sizeable quantum of short term borrowings. However, trade debts and inventory levels are more than sufficient to cover short term borrowings. Short term borrowings are projected to decrease on a timeline basis. Going forward, maintenance of leverage indictors at adequate levels is considered important from ratings perspective.

For more information, contact:
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk

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