Island Textile Mills : PACRA Places Entity Ratings of Island Textile Mills Limited on Rating Watch, Outlook "Negative" - Press Release issued by The Pakistan Credit Rating Agency Limited

March 30, 2020 (PPI-OT)

Following is the text of press release issued by The Pakistan Credit Rating Agency Limited (PACRA)

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Island Textile Mills Limited - a public listed company - is primarily engaged in the manufacturing and sale of different varieties of yarn. The Company is part of Tata group that currently owns three textile mills, Tata Textile, Salfi Textile and Island Textile Mills Limited. The group has also diversified into power and food sectors. Spinning industry was suffering from lower demand for cotton yarn from China owing to trade war with USA that led to lower exports. The recent outbreak of COVID-19 pandemic has impacted the entire textile chain, as demand has gone down globally.

The impact on yarn sales has been visible in both local and export markets. Island Textile's margins and, in turn, profitability suffered due to disproportionate increase in raw material prices and higher finance costs. The ratings reflect the Company's modest financial risk profile characterized by high leveraging, weak coverages and stressed cahflows. Long association of experienced and professional management team and proven track record of sponsors add comfort. Going forward, management is planning to merge all three textile entities in order to benefit from economies of scale.

The Rating Watch signifies prevailing uncertain business dynamics due to COVID-19 outbreak and still evolving situation. The Company's production facilities, like other industrial units, have been shut down in line with the provincial Government's directive of lockdown. PACRA is closely monitoring the situation and will take rating action accordingly.

The ratings are dependent on improving business margins and outcome of current scenario. A prolonged downturn or halt in production leading to significantly lower revenues will impact the ratings. Prudent management of short-term liquidity and sustaining adequate coverages is critical. Elimination of trade level mismatch in assets and liabilities remains crucial.

For more information, contact:Analyst,The Pakistan Credit Rating Agency Limited (PACRA)Awami Complex, FB1, Usman Block New Garden Town,Lahore, PakistanTel: [phone]Fax: [phone]Email: [e-mail]: www.pacra.com

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