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VIS Upgrades Entity Ratings of Union Apparel (Private) Limited


Karachi, January 06, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Union Apparel (Private) Limited (UAPL) to ‘A-/A-2’ (Single A Minus/ A-Two) from ‘BBB/A-2’ (Triple B/A-Two). 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 has been revised from ‘Rating Watch-Negative’ to ‘Stable’. Previous rating action was announced on April 24, 2020.

Setup in 2016, UAPL is a wholly-owned subsidiary of Union Fabrics (Private) Limited (UFPL), engaged in manufacture and sale of fabric to leading brands in the local market. Upward revision in ratings reflects improvement in profitability and liquidity indicators on a timeline basis; along with strong sponsor support providing commitment to meet all future financial liabilities of the company as the need arises. Ratings also factor in UAPL’s satisfactory order book position which provides adequate revenue visibility in the medium term. Single client concentration has witnessed improvement on a timeline basis, however the same is considered to be on the higher side. Ratings draw comfort from long term association of the parent company with reputed brands.

Assigned ratings incorporate moderate business risk profile of the company. Textile exports depicted growth of 9.3% during FY20 driven largely by sizeable currency devaluation in the outgoing year. Overall growth emanated from the value added segment. The sector also benefited from the COVID-19 related boom in exports. Favourable government policies for enhancing exports and improving country’s perception and law and order situation bode well for the textile sector. Conversely, increasing cost of doing business and reduction in rebate rates may impact margins for selected players. Even though implications of COVID-19’s second wave remain elevated, we expect the order book for the industry to remain strong in the ongoing year, easing our business risk concerns.

Assessment of financial risk profile reflects consistent improvement in profitability and liquidity indicators of the company. Gross margins have depicted consistent improvement on the back of volumetric growth and higher pricing of value-added products. Going forward, profitability levels are projected to further strengthen due to large number of orders on hand and higher projected sales post expansion. Liquidity profile has improved in line with growth in profitability depicting sufficient cash flow coverages against outstanding obligations.

Debt servicing coverage ratio is considered adequate. Given company’s plan to drawdown long term debt to finance expansion, maintenance of adequate liquidity levels against borrowings is considered important from a ratings perspective. Leverage indicators have improved in FY20 and are expected to further improve on the back of profit retention and equity injection expected over the next two years. Given projected increase in debt levels, management expects leverage levels to remain within manageable levels in support with improved profitability profile. Ratings remain dependent on maintenance of gearing at current levels and improving leverage levels, going forward.

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

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