Lahore, September 29, 2022 (PPI-OT):Ravi Automobile (Private) Limited (‘Ravi’ or ‘the Company’) operates in two segments of the automotive industry: i) manufacturing of components and auto parts for automotive companies, OEM suppliers, motorcycles and agricultural machinery ii) assembling and distribution of motorcycles under its own brand. The ratings reflect Ravi’s diversified product line, long-lived presence in the domestic market, and sponsors’ deep-rooted connections with leading industry players. This is asserted through group’s expansion into multiple standalone entities, including Infinity Engineering (Pvt.) Limited and Ravi Spherocast, both sizeable enterprises augmenting the group’s presence in the sector.

Pakistan’s automotive and allied industry witnesses a dip owing to economic instability, persistent inflationary pressures, and policy hikes. The rising input costs of imported raw materials suppressed the profitability for all players of the automotive segment. There is reduction in custom duty on imports of prime materials to incentivize local players. Despite adverse industry challenges, the Company managed to record a revenue growth of ~29% during first nine months of FY22. The sales reflect top party concentration, but sponsors are of the view that concentration is acceptable as decades-long relationships exist. Margins are considerably dependent on improved topline; better prices and more volume. Business risk profile of the Company is demonstrated by expected revival, specifically in 2-Wheelers and Agri segments.

Moreover, the Company availed long-term finance facility at concessionary rates to ensure timely expansion that would allow localization by exploiting its in-house capabilities developed over time. To achieve aforesaid and improve its governance standard, Ravi also partnered up with Ithaca Capital (Pvt.) Limited for private equity injection. Financial risk profile represents longer working capital cycle for which the management is of the view, tends to be shortened owing to strategic shift towards component business. Given the Company’s expansion phase, capital structure is leveraged for now. Comfort can be drawn from the need driven nature of the business, backward integration, and synergies in the overall group.

The ratings are dependent on Ravi’s ability to achieve projected revenue growth in key business segment and sustain profitability matrix amidst challenging operating environment. Prudent financial discipline and implementation of a stringent control environment shall remain imperative.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com