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VIS Reaffirms Entity Ratings of Union Fabrics (Private) Limited


Karachi, December 17, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘A-/A2’ (Single A Minus/A-Two) assigned to Union Fabrics (Private) Limited (UFPL). Long Term Rating of ‘A-’ reflects good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals, and good access to capital markets. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 26, 2018.

UFPL currently operates in the home textiles, processing and value added business lines in addition to weaving. In the ongoing year, UFPL converted its wholly-owned subsidiary, Union Apparel (Private) Limited (UAPL) to a manufacturing concern. As part of the transaction, UFPL sold off land and building, along with a portion of its machinery, from one of its manufacturing units, to UAPL. Capacity utilization levels of sizing, weaving, stitching and processing segments continued to rise and stood above 90% during the outgoing fiscal year. UFPL is in process of revamping its information technology infrastructure with implementation of SAP enterprise resource planning software which is likely to support scaling up of operations. Nevertheless, overall corporate governance framework depicts room for improvement in line with best practices.

Net sales increased by 14% in FY19 with growth emanating from higher export as well as local sales. On a timeline basis, sales of home textiles in sales mix has increased with the same expected to grow further, going forward. Given the orders in hand, sales projected to depict growth in FY20. Going forward, greater sales from value-added segment are projected to off-set the impact of finance costs, consequently improving profitability.

Equity base has increased on account of profit retention and issuance of right shares for funding expansion. As at end-1QFY20, equity base has been supported by sponsor loan which will be converted to share capital. Further equity injection planned by sponsors during ongoing fiscal year will support capitalization levels of the company. Assigned ratings remained constrained by high leverage indicators, although the same have improved on a timeline basis. Despite planned equity injection, leverage indicators are projected to remain high on account of debt drawdown to fund capex in the ongoing fiscal year. Cash flow coverage of outstanding long term debt and debt servicing coverage remain adequate. Going forward, ratings will remain dependent on maintaining high utilization levels while improving leverage indicators and coverages in line with benchmarks for the assigned ratings.

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
Tel: +92-21-35311861-72
Fax: +92-21-35311873