Karachi, January 04, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Shakarganj Food Products Limited (SFPL) at ‘BBB+/A-3’ (Triple B Plus/A-Three). VIS has also maintained the instrument rating at ‘BBB+’ (Triple B Plus). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-3’ denotes timely payment of obligations coupled with satisfactory company fundamental and liquidity factors. Outlook on the assigned ratings has been revised from ‘Negative’ to ‘Stable’. Previous rating action was announced on November 23, 2020.
The ratings assigned to SFPL take into account the company’s strong sponsor profile, comprising renowned business concerns including Sharkarganj Limited, Bank-Islami Pakistan Limited and Crescent Steel and Allied Products Limited. The ratings incorporate moderate business risk environment underpinned by presence of the company in fast moving consumer goods segment (FMCG) coupled with positive demand prospects of dairy products in line with population growth and higher per capita consumption. However, market domination by two strong players makes the market challenging for the second-tier players. Moreover, the industry margins remain sensitive to exchange rate risk and price risk pertaining to imported skimmed milk powder and edible oils.
The ratings incorporate recovery of financial indicators; growth in revenues and margins was manifested in line with improved distribution strategies in tandem with better pricing and shift in revenue mix. However, being an FMCG the ratings remain sensitive to SFPL’s nominal net margins on account of significant promotional expenses. Moreover, the ratings reflect improvement in liquidity profile with adequate debt service coverage coupled with healthy fund flow from operations; the latter is considered adequate in terms outstanding obligations. Further with the company’s bottom reverting back to positive, gearing and leverage indicators improved slightly given there was no noticeable increase in debt utilization.
However, debt leverage still remains on a higher side on account of sizable trade payables. Further, current ratio also continues to remain low on account of high trade payables. The ratings derive comfort from timely repayment of Sukuk installments post restructuring under relief package announced by SBP and SECP amid Covid-19 in July’20. Going forward, the ratings are dependent on improvement of market penetration and new market development leading to revenue growth, mitigation of margin volatility, improvement of leverage indicators and materialization of projected targets.
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
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