VIS Reaffirms Entity Ratings of Zaman Textile Mills (Private) Limited - Press Release issued by VIS Credit Rating Company Limited.

Karachi -- March 07, 2023 (PPI-OT)

Following is the text of press release issued by VIS Credit Rating Company Limited

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VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of 'A-/A-2' (Single A Minus/A-Two) to Zaman Textile Mills (Pvt.) Limited (ZTML). Long-term entity rating of 'A-' reflects good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of 'A-2' indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital market is good. Risk factors are small. Outlook on the assigned ratings remains 'Stable'. Previous rating action was announced on March 08, 2022.

Ratings reaffirmation takes into account ZTML's position as a vertically integrated textile composite, competitive advantage as offering end-to-end solution to retail brands, ongoing initiatives to enhance capacity, timeline revenue growth with improved profitability margins that are outpacing several industry peers, adequate liquidity position and all-out retention supporting growth in equity base.

However, debt coverage and leverage metrics have weakened over the review period owing to increase in debt levels. Business risk profile takes into account industry wide growth in exports over the last year; however, recent floods across the country, rising interest rates, inflationary pressures, and higher electricity costs pose risks on the sector over the medium term. Ratings are constrained by current weak macroeconomic environment globally and locally.

Under capacity enhancement initiatives, there are plans to add 65K new spindles in the spinning division, of which ~18K have already been installed and remaining will be added by Mar'23, taking the total tally to 144K+ and thereby increasing production capacity by 2x. The project cost is estimated at Rs. 10b, which will be financed using a debt to equity mix of 60:40. In addition, the weaving segment added 160 new looms since last review and further addition of 70 new...