JCR-VIS Credit Rating Company Limited – Page 2

January 28, 2019

JCR-VIS Assigns Initial Ratings to Siara Textile Mills (Private) Limited

Karachi, January 28, 2019 (PPI-OT):JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB-/A-2’ (Triple B Minus/A-Two) to Siara Textile Mills (Pvt.) Limited (STML). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound and risk factors considered small. Outlook on the assigned ratings is ‘Stable’.

STML is a small-sized spinning unit involved in manufacturing of yarn. STML is a family owned business with 100% shareholding vested with the sponsoring family; members of which are actively involved in the operations of the company. The ratings take into account sound debt coverage substantiated by adequate funds from operations and virtual absence of long-term debt.

The ratings are largely constrained by STML’s spinning unit running close to full capacity, small equity base and the vulnerability of the spinning sector to raw material prices. With increasing proportion of imported cotton, the company remains exposed to fluctuations in Pak rupee vis-à-vis foreign currencies. The ratings are dependent upon maintenance of leverage indicators at the current levels in an event of capacity expansion or otherwise.

For more information, contact:
Director Compliance and Rating Analytics,
JCR-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: http://jcrvis.com.pk/

January 25, 2019

JCR-VIS Reaffirms Corporate Governance Rating of Pakistan Kuwait Investment Company (Private) Limited at CGR-9

Karachi, January 25, 2019 (PPI-OT): JCR-VIS Credit Rating Co. Ltd. has reaffirmed the Corporate Governance Rating of Pakistan Kuwait Investment Company (Private) Limited (PKIC) at ‘CGR-9’. The previous rating action was announced on December 29, 2017.

The assigned rating incorporates the sound governance structure of PKIC, in context of Joint Venture Agreement (JVA) between the two sponsoring sovereigns, Government of Pakistan (GoP) and Government of Kuwait (GoK). Both shareholders have equal representation on the Board. PKIC has a sound corporate governance framework underpinned by strong financial transparency, management profile and effective functioning board and management level committees. Frequency of board and committee meetings, high attendance record and comprehensive discussion on various aspects of the company during the meetings demonstrates high level of engagement of Board members.

During 2017 and 2018 changes were witnessed at senior management level which included new appointments as well as internal transfer. A satisfactory succession plan is also in place. The company has a well-defined organizational structure with each functional area overseen by a separate qualified and experienced senior resource. Disclosures available in the public are adequate and made in a timely manner. Internal controls and compliance framework are also considered sound.

January 24, 2019

JCR-VIS Reaffirms Broker Management Rating of BMA Capital Management Limited

Karachi, January 24, 2019 (PPI-OT): JCR-VIS Credit Rating Company Ltd. (JCR-VIS) has reaffirmed the Broker Management Rating of BMA Capital Management Limited (BMA) at ‘BMR2+’. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on December 8, 2017. The rating signifies strong internal controls, client relationship and HR and IT services; sound regulatory compliance levels, external control framework and risk management while financial management is adequate.

The rating continues to factor in BMA’s strong internal control environment substantiated by well-defined and prudent policy framework; however, an independent ‘conflict of interest policy’ may be developed and shared with staff for effective implementation of the same. Quality of external control framework is considered sound. Furthermore, increase in board size and formation of board level Risk Management and Human Resources committee would add to governance levels.

Profitability indictors remained under pressure due to reliance on retail brokerage function and depressed market volumes during FY18. Efficiency ratio has also weakened considerably. Going forward, financial performance would remain sensitive to volatilities of stock market and is subject to risks associated with it.

January 18, 2019

JCR-VIS Reaffirms Entity Ratings for Shahtaj Textile Limited

Karachi, January 18, 2019 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings of Shahtaj Textile Limited (STL) at ‘A-/A-2’ (Single A Minus/A-Two). The long term rating of ‘A-’ signifies good credit quality with strong protection factors. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are considered sound with good access to capital markets. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 14, 2017.

The assigned ratings take into account strong sponsorship profile of ‘Shahnawaz Group’; the group comprises six companies including Shahtaj Textile Limited (STL). Other group entities belong to food and engineering related sectors. STL is primarily engaged in the manufacturing, selling and marketing of grey fabric.

Top line of the company witnessed a significant growth in the outgoing year. As per the management, increase in sales compared to preceding year was a combination of higher procurement of orders in both local and international market and some increase in average selling prices. However, on account of rising fuel power prices and volatility in yarn prices, competitive pressures on margins coupled with an increase in finance cost resulted in reduced bottom-line of the company. Going forward, management expects margins to improve on the back of reduction in gas prices by the government. Developments in this regard are yet to materialize. Maintaining performance indicators is considered important from a ratings’ perspective.

On a timelines basis, capitalization levels of the company have improved on the back of profit retention. Nonetheless, leverage indicators deteriorated with higher borrowings utilized for meeting working capital requirement needs and funding BMR activities. Going forward, management expects nominal expenditure for capex requirements in the rating horizon which is expected to support the liquidity and debt service profile of the company. Improvement in capitalization indicators will remain a key rating driver, going forward.

Funds from Operations (FFO) levels of the company are considered sufficient to meet the outstanding debt obligations as indicated by sizeable debt servicing coverage ratio. Current ratio, despite a dip in FY18 with higher current liabilities, has remained at sufficient levels above 1.0x. Inventory and trade debts also provide adequate coverage for short-term borrowings.

January 18, 2019

JCR-VIS Reaffirms Entity Ratings of Topline Securities Limited

Karachi, January 18, 2019 (PPI-OT): JCR-VIS Credit Rating Company Ltd. (JCR-VIS) has reaffirmed the entity ratings of Topline Securities Limited (TSPL) at ‘A-/A-2’ (Single A-Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on July 19, 2017.

The assigned ratings incorporate TSPL’s strong operating model and low exposure to credit and market risk given high proportion of Institutional Delivery System in overall volumes and no proprietary book. Ratings also reflect company’s healthy liquidity profile and capitalization indicators and existing market position. Ratings are constrained by cyclical nature of the brokerage industry.

Brokerage industry continues to be affected by economic cycles. Declining trend in trading volumes during FY18 and the ongoing year has impacted the topline of brokerage industry. Given the operating environment, players with efficient and variable cost structures focusing on high margin business and diversification in revenue streams are expected to fare better vis-à-vis peers.

Players with large proprietary books have also witnessed losses given weak market performance. Going forward, given low base effect of ready market volumes and growing volumes in the future segment and improved valuations post two consecutive years of decline in benchmark index, overall market volumes during FY19 are expected to be higher vis-a-vis FY18.

Topline has historically focused on high margin business and operates on a variable cost structure. This has resulted in limited increase in TSPL’s cost to income ratio vis-à-vis other industry players. Currently, brokerage income represents around nine-tenth of the company’s revenues. However, improved diversification in revenue streams is expected given strong corporate advisory pipeline. Moreover, improved liquidity and increase in benchmark rates is expected to translate into healthy growth in treasury income. Liquidity and capitalization indicators have improved on a timeline basis and are considered sound.

January 18, 2019

JCR-VIS Reaffirms MQ Rating of AWT Investments Limited

Karachi, January 18, 2019 (PPI-OT): Following the acquisition of Primus Investment Management Limited by Army Welfare Trust, JCR-VIS Credit Rating Company Ltd. has reaffirmed the Management Quality (MQ) Rating of AWT Investments Limited (AWTIL) at ‘AM3+’ (AM-Three Plus). Rating Watch-Developing status assigned to the ratings has been removed. Outlook on the assigned ratings is now ‘Stable’. The previous rating action was announced on December 15, 2016.

AWT Investments Limited (AWTIL) (formerly Primus Investment Management Limited) operates as a Non-Banking Finance Company (NBFC) with licenses to undertake ‘Investment Advisory’ and ‘Asset Management Services’. In 2017, the Army Welfare Trust (AWT) acquired 100% stake of Primus Investment Management Limited from Pak Brunei Investment Company Limited (PBICL).

The assigned rating takes into account sound profile of the existing sponsor, AWT, which has more than 4 decades of experience in the financial services sector, operating companies under the “Askari” brand in banking, insurance, leasing, financial services and asset management industries. Sponsor has demonstrated commitment by expressing intent to inject Rs. 100.0m equity in the company in order to ensure compliance with minimum equity requirement for Asset Management and Investment Advisory Companies. Rating is dependent upon recouping the decreased Assets under Managements (AUMs) post acquisition, revenue growth and strengthening of capitalization indicators.

Presently, AWTIL is managing 5 funds in the conventional income, equity and asset allocation categories as well as Islamic income and equity categories. Performance of largest fund, PIML Income Fund (IF), has improved as it ranked in the first quartile among respective peers in FY18 and the ongoing year. However, performance of other funds depicts room for improvement as the same ranked either in third or in fourth quartile of the respective peer groups. The company initiated advisory services to high net-worth clients in July 2018. Sizeable growth has been observed in Separately Managed Accounts (SMAs) in the period since July 2018.

Overall governance framework is considered satisfactory in the backdrop of induction of seasoned professional management team, adequate risk management practices and formalized investment process. Control framework is supported by audit, compliance and IT infrastructure. With growth in SMAs, control framework will be tested over time. Going forward, management envisages ambitious growth in AUMs. The achievement of the same in the given rating horizon would be an important rating determinant.

January 17, 2019

JCR-VIS Reaffirms Entity ratings of Arif Habib Limited

Karachi, January 17, 2019 (PPI-OT): JCR-VIS Credit Rating Company Ltd. has reaffirmed the entity ratings of Arif Habib Limited (AHL) at ‘AA-/A-1’ (Double A Minus/A-One). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 24, 2017.

The assigned ratings are underpinned by the sponsors’ profile, with majority shareholding vested with Arif Habib Corporation Limited, the holding company. The sponsor owns significant interests in fertilizers, securities and commodities brokerage, corporate advisory, asset management, cement and steel sectors. Board of directors at AHL includes members with experience in the financial services sector while senior management comprises seasoned professionals. Ratings also reflect healthy growth in market share during FY18, diversified revenue streams and healthy financial risk profile.

AHL remains one of the prominent players in both, equity and corporate advisory domain with a market share of ~9% (based on ready and future value) in equity trading. In line with market trend, profitability depicted decline on account of reduction in equity brokerage and corporate advisory income. Decrease in recurring revenue outpaced reduction in expenses (expenses included investment in human capital to enhance market share), as a result, efficiency ratio of the company weakened. During the review period, the company has focused on growth in business from high net worth individuals and institutions through strengthening of human resources, sales team reorganization, branch expansion and relationship management.

Size of proprietary book was reduced in FY18 and ongoing fiscal year. Conversely, the company made sizeable investment in property. With large direct exposure to equity market, market risk is considered to be on the higher side. A major chunk of the investment portfolio pertains to investment in group companies and proprietary investments with around one-tenth of the portfolio comprising ready future transactions.

Liquidity profile draws further support from the understanding given to us that, as and when required, AHL has firm commitment from its sponsoring company to buy back strategic investment from AHL’s short term investment portfolio. In order to manage balance sheet risk, there are limits in place for leverage, underwriting and proprietary equity investments. Going forward, ratings would be dependent upon such functional framework being present.