Karachi, May 09, 2023 (PPI-OT): VIS Credit Rating Company Limited has maintained entity ratings of Orient Electronics (Pvt.) Ltd. (OEL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings have been revised from ‘Rating Watch – Developing’ to ‘Rating Watch-Negative’.
The long-term rating of ‘A-’ signifies good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. Short term rating of ‘A-2’ denotes good certainty of timely payments; liquidity factors are and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Previous rating action was announced on March 17, 2022.
OEL is one of the leading home appliances manufacturers in the country. The assigned ratings take comfort from the strong profile of the two main sponsoring families who have over six decades of experience in the industry.
Ratings are placed on ‘Rating Watch’ status due to an impending group restructuring involving OEL, Orient Color Labs (OCL - Parent company) and Orient Electronic Appliances (Pvt.) Limited (OEAL - An associated company) which was approved in 2019 by the board of directors of the respective companies.
According to the scheme, OEL will be separated as a going concern and will be transferred and vested to OEAL while OEL will retain the rights, title and interest in immoveable properties. Shareholding of OEL and OEAL will then by divided between the two sponsoring families. Court approval on the proposed scheme is awaited.
Rating Watch with a Negative outlook reflects the Company’s elevated business and financial risk owing to the challenging macroeconomic environment that has posed notable operational difficulties. In particular, restrictions on imports have resulted in raw material constrains which has ultimately reduced capacity utilization across all product lines significantly.
With lower volumetric output topline of the company in the outgoing year, however, gross margins witnessed an improvement owing to higher selling prices and inventory gains. Net margins, on the other hand reduced on the account of higher financing costs amidst policy rate hikes. With subdued profitability, cash flow coverage’s were adversely affected, adding pressure on the overall liquidity position and debt-servicing capacity of the Company.
Lower working capital requirements and partial re-profiling of long-term debt have improved gearing and leverage indicators during the review period. Going forward, the assigned ratings will remain sensitive the company’s ability to navigate its way through the myriad of macroeconomic challenges to uplift its profitability performance and liquidity profile whilst maintaining range bound capitalization levels.
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
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/