VIS Assigns Initial Ratings to Power Chemical Industries Limited

Karachi, September 13, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Power Chemical Industries Limited (POWCI). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.

POWCI is a family-owned business. The company is primarily involved in manufacturing and sale of diverse product portfolio, including paint and coating chemicals, plasticizers, adhesives and textile chemicals. The major portion of sales is related to paint and coating industry which, in turn, is directly linked to growth in construction, infrastructure and industrial sectors of the country. POWCI is the largest producer of paint and coating chemicals with ~60% market share while rest of the local industry is highly fragmented.

The industry is exposed to exchange rate risk due to considerable reliance on imported raw material while the products are primarily sold in local market, and commodity price risk due to correlation of raw materials cost to international crude oil prices. Nonetheless, the industry gets some relief in terms of absence of custom duties on import of major raw materials while import of finished goods have been imposed with duties. The company is at an advantage relative to its peers in terms of economies of scale emanating from import of raw material in bulk quantities. Moreover, the relative market positioning of the company and advance payments from clients to lock prices also mitigates the business risk to some extent.

The ratings incorporate sizeable growth in revenues in the outgoing year on account of increase in volumetric sales and average selling prices. The company was able to maintain gross margins despite increase in cost of raw materials. Net margins have improved mainly on the back of rationalized operating expenses and lower effective tax rate. Liquidity profile is underpinned by adequate current ratio and manageable net operating cycle.

Debt service coverage has also remained adequate on a timeline basis. The company has moderately leveraged capital structure with limited reliance on long-term financing. The ratings are sensitive to forex volatility and availability of raw material. The ratings would remain dependent on achieving projected growth in revenues and profitability while improving cash flow coverages and leverage indicators.

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