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VIS Reaffirms Entity Ratings of CBM Plastics (Private) Limited

Karachi, November 22, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘BBB+/A-2’ (Triple B Plus/ A Two) to CBM Plastics (Private) Limited. Long-term rating of ‘BBB+’ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short-term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on October 05, 2021.

Ratings reaffirmation reflects the company’s competitive positioning as the market leader in supplying ‘lube oil’ containers to the OMC segment. With heavy reliance on imports for major raw material requirements, price volatility and currency risk are mitigated to some extent by cost pass-through mechanism in place under long-term contracts with key customers.

To further reduce the exchange risk, management intends to shift towards spot payment terms for raw material purchases. Ratings also take note of recent strong growth in sales revenue, mainly driven by the impact of rupee depreciation and rising raw material prices. Liquidity profile remains stressed, and the declining profit margins have impacted cash flow generation and debt coverage metrics, which needs to be recouped to maintain the ratings going forward.

With regards to capacity additions and efficiency enhancement initiatives, the company underwent an upgradation of plant and machinery during the review period. The capex was partially funded through mobilization of additional long-term debt (musharka financing). OMC segment (lubricant sales) remains the largest revenue contributor in the overall sales mix. Concentration risk in sales remains elevated; however, long-term established business relationships with clients, where CBM Plastics is the sole or major supplier, provide comfort. Working capital cycle is stretched due to higher inventory and debtor days while to address the same management has communicated that downward revision in receivable days with key customers is underway. Adjusting for off-balance sheet financing whereby company entered into Ijarah agreements to acquire plant and machinery, leverage indicators remain elevated.

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/

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