JCR-VIS Credit Rating Company Limited
(JCR-VIS) has upgraded the medium to long entity ratings
of Hira Textile Mills Limited (HTML) to BBB+ (Triple B
Plus) and TFC rating to A (Single A) from BBB (Triple B)
and A- (Single A Minus) respectively. The short term
entity rating has been reaffirmed at A-3 (A Three). The
outlook on the medium to long term entity and TFC
ratings is Stable.
The upgrade takes into account the
successful completion of the re-profiling of the debt of
the company through issuance of TFCs of Rs. 350m during
FY2005, resulting in reduction in debt stock and
creation of fiscal space. Simultaneously, healthy growth
in cash flows witnessed during the past two years, based
on increased sales driven by the full impact of
expansion conducted in FY2004 and strong margins, have
significantly improved the coverage ratios of the
company with respect to existing debt levels. Along with
the improved profitability that was fully retained, the
capital structure was further strengthened through
equity injections amounting to Rs. 100m since FY2003,
which helped reducing the previously high gearing
levels. The company is expected to meet its ongoing BMR
requirements through internal cash generation in view of
the grace period of two years provided for the TFC
issue.
The company is planning to invest in
a Joint venture towel manufacturing unit, in partnership
with a foreign trading company. The total cost of the
project is estimated at around Rs. 700-800m towards
which HTMLs cash equity contribution is expected to be
in the range of Rs. 100-150m. JCR-VIS feels that this
level of investment would not seriously impact the
balance sheet profile of HTML.
JCR-VIS will continue to monitor the
sustainability of the recent results of the company over
the next few years as well as the progress of their
diversification and expansion efforts. However, the
company needs to pay attention to the areas of internal
audit and management information systems, both of which
are still at very basic levels.
