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Lr- Loan rating; ST-Short Term *Due to its revolving nature, CRAB views Cash Credit (CC) as long-term facility. Date of Rating: 02 June 2011 Validity: The Long Term ratings are valid up to 30 June 2012 and the Short Term ratings are valid up to limit expiry date of respective credit facilities or 30 June 2012 whichever is earlier. Rating Based on: Audited financial statements up to 31 December 2010 and other relevant quantitative & qualitative information up to the date of rating declaration. Methodology: CRABs Corporate Rating Methodology (www.crab.com.bd) Analysts: Tuli Maria Goretti Gomes tuli@crabrating.com Nur Elahee Molla nur_elahee@crab.com.bd Table 1 Financial Highlights of ACML -- Year ended December 31-(Mil. BDT) Net Sales EBITDA EBITDA Margin (%) Net Profit Margin (%) ROAA (%) Quick Ratio () Operating Cycle (Days) Debt to Equity () Borrowed Fund to EBITDA () Cash Flow from Operation Free Cash Flow EBIT/Interest (x) -47.6 -154.7 1.1 -98.6 -154.7 1.1 93.3 68.0 1.5 2010 809.7 93.5 11.5 0.7 0.4 1.3 269.0 0.9 6.8 2009 790.2 151.9 19.2 0.6 0.4 1.6 271.0 0.9 4.2 2008 853.6 168.1 19.7 3.2 2.2 0.9 247.0 1.3 4.4
R ATIONALE
Credit Rating Agency of Bangladesh Limited (CRAB) has assigned BB1 (Pronounced Double B One) rating in the Long Term to Akbar Cotton Mills Ltd. (hereafter referred to as ACML or the Company) and BB1 (Lr) to BDT 114.37 million aggregate Long Term Outstanding (LTO) of the Company. CRAB also assigned ST-4 rating to BDT 50.0 million aggregate fund based limits and BDT 897.5 million aggregate non-fund based limits in the Short Term. The rating considers high credit risk profile of Akbar Group characterized by high debt to equity ratio of 2.3x and low net profit margin of 1.8%. Akbar Composite, the associate company of ACML has very high debt to equity ratio of 16.2x as a high tech start-up company, Akbar Textile Mills Ltd, having 8.0x debt ratio, is under implementation stage which is eventually lessen the favourable capital structure of ACML (0.9x). The rating also considers continuous declining trend in net sales. The Company reported capacity utilization of only 75.8% in 2010, lowest among the last three years, due to inadequate supply of Gas. This low production also reduced the total sales volume in 2010 although net sales marginally increased by 2.47% in 2010, after declining trend in consecutive three years, due to the rise in sales price. The gross profit margin also reported declining trend from 2006 and was lowest in 2010 due to large increase in raw cotton price in the international market. Therefore overall revenue generating ability and profitability position of the Company has been declining over the years which were considered while assigning rating.
PROFILE
Akbar Cotton Mills Ltd., a 100 % deemed exporter of knit yarn, was incorporated as a private limited company and started its operation in November, 2004. It produces knit yarn of different counts ranging from 20c to 34c. Presently total production capacity of the Company is 5.15 million kgs yarn with 29,928 spindles. The factory of the Company is located at Jamirdia of Bhaluka, Mymenshingh on total land of 593 decimals.
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Textile
The rating is constrained by protracted operating cycle resulted from delay in receivable collection which eventually resulted in slight stringent liquidity position even after having comparatively good current ratio and quick ratio. The payable period (considering working capital loan) of 234 days in 2010 was also high. The EBITDA and cash flow structure also deteriorated over the years that may affect the timely repayment of debt obligation. Though the Company has favourable capital structure having debt to equity ratio of 0.9x during the last two years, a significant decline in EBITDA increased the requirement of external financing and the slow cash flow eventually lessens the favourable capital structure that resulted in slight increase in credit risk compared to the previous trend . Deteriorated debt servicing indicators also reveal increased credit risk of ACML though the business dealings of the Company with the banks were satisfactory having no rescheduling and classification. The rating is supported by the prospect of spinning industry in Bangladesh, which has been experiencing good business in the recent past, showing sign of overcoming challenging situation. The assigned rating incorporates a challenge for the Company regarding recent problem of inadequate pressure of gas supply to run the old gas based generators that hampered production in 2010. To mitigate the problem it increased the pressure of gas supply from 10 psi to 15 psi in May, 2010. It is maintaining extra 10%-25% labor force to ensure timely availability of workforce in all sections to continue the smooth operation of the factory. The rating also considers the promoters long record of accomplishment in the textile sector having experience of practicing policy & procedure regarding different operational issues & reporting lines, senior professionals having long experience about textile industry, monitoring & quality control in each stage of production, facilities to the employee, easy access to data and quick flow of information and the modern machinery set up of the factory.
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D (Default)
*Not e: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mi d-range ranking; and the modifier 3 indicates a ranking in the low er end of that generic rating category.
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CRAB RATING SCALES AND DEFINITIONS LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS
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SHORT-TERM CREDIT RATIN G: LOANS/FACILITIES OF BAN KS/FIS (All loans/facilities with original maturity within one year)
RATING
ST-1
DEFINITION This rating indicates that the degree of safety regarding timely payment on the loans/facilities is very strong. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is strong; however, the relative degree of safety is lower tha n that for issues rated higher. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is adequate; however, the issues are more vulnerable to the adverse effects of changing circumstances than issues rated in the two higher categories. This rating indicates that the degree of safety regarding timely payment on the loa ns/facilities is marginal; and the issues are quite vulnerable to the adverse effects of changing circumstances. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is minimal, and it is likely to be adversely affected by short-term adversity or less favorable conditions. This rating indicates that the loans/facilities are expected to be in default on maturity or is in default.
Highest Grade
ST-2
High Grade
ST-3
Adequate Grade
ST-4
Marginal
ST-5
Inadequate Grade
ST-6
Lowest Grade
Copyright 2008, CREDIT RATING AGENCY OF BANGLADESH LIMITED ("CRAB"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDI STRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT CRABS PRIOR WRITTEN CONSENT. All information contained herein is obtained by CRAB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided as is wit hout warranty of any kind and CRAB, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, a ny error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretatio n, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if CRAB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, A S TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RA TING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY CRAB IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed sol ely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.
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