PACRA – Page 12 – PPI News Agency

December 28, 2020

PACRA Maintains Entity Ratings of EFG Hermes Pakistan Limited

Lahore, December 28, 2020 (PPI-OT): The ratings reflect EFG Hermes Pakistan Limited’s (“EFG Hermes” or “The Company”) association with an international financial services group “EFG Hermes” having access to emerging and frontier markets. The Company has carved its footprints in thirteen countries across four continents, spanning 35 years of growth. The assigned ratings incorporate company’s adequate market share, well built governance structure and satisfactory operating profitability. The Company maintains a high leveraged capital structure whereby, the parent company has provided unconditional and irrevocable financial guarantee to the bank.

Following the recent boom in traded volumes of stock exchange, the core revenue of the Company remained buoyant and the Company maintained its market share to ~3%. The Company does not maintain proprietary investments hence less exposed to market risk. Sizable liquid assets and support from parent provide comfort to the ratings. Further, appointment of ‘A’ category auditors and establishment of two board level committees augurs well for insightful monitoring.

The Net Capital Balance of the company clocked in at ~PKR 370mln with an equity base of ~PKR 138mln as at end Sep’20 whereas, the net profit after tax and net equity of parent Company stood at ~EGP 426mln and ~EGP 13.6bln. The topline of the EFG Hermes Pakistan lacks diversification in revenue stream and concentrated to the equity brokerage income which clocked in at ~PKR 128mln at end Sep’20 (SPLY: ~PKR 70mln). The Company earned profit amounting to ~PKR 0.49mln during 3QCY20 (3QFY19: ~PKR 56.6mln loss).

The ratings are dependent on the management’s ability to retain its market share and enhance the volumes and diversity of revenue to improve its competitive position in the brokerage industry. Retention of key personnel and sustainability of profitability will remain imperative from ratings perspective.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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December 28, 2020

PACRA maintains Entity Ratings of Usmani International Associates (Private) Limited

Lahore, December 28, 2020 (PPI-OT): Usmani International Associates (UIA) has been operating in the construction industry for many decades. Construction business is dependent on award of public works and initiatives taken by the public and private sector, muted activity is witnessed therein; furthermore, the countrywide lockdown to combat Covid-19 pandemic put a halt in constructional activities. The topline has continued to show a declining trend from the previous year after three years of consecutive growth, reflected from the assigned ratings.

The reported profitability in terms of gross margin is adequate, though operational efficiency needs to be harnessed. The audited accounts of the company for FY20 reflect the sustained business and financial risk profile of the entity. The governance framework is expected to evolve, going forward. The control environment may be strengthened by harnessing the audit quality and adopting semi-annual accounts. The ratings are dependent upon the sustained positioning of the company in the industry.

The rating dependent on continued business activity and sustained operational capability. Adherence to sound financial discipline while capturing the market through competitive and efficient bids is pivotal for survival. Strengthening of the project pipeline is also essential for the ratings. Improving governance and control environment is also important.

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December 28, 2020

PACRA maintains the Broker Management Rating of EFG Hermes Pakistan Limited

Lahore, December 28, 2020 (PPI-OT): The rating reflect EFG Hermes Pakistan Limited’s (“EFG Hermes” or “The Company”) association with an international financial services group “EFG Hermes” having access to emerging and frontier markets. The Company has carved its footprint in thirteen countries across four continents, spanning 35 years of growth. The assigned rating incorporate company’s adequate market share, well built governance structure and satisfactory operating profitability.

The rating also reflect presence of experienced management at helm, satisfactory risk management and internal control framework and compliance with regulatory affairs. Following the recent boom in traded volumes of stock exchange, the core revenue of the Company remained buoyant and the Company maintained its market share at ~3%. The Company does not maintain proprietary investments hence, less exposed to market risk. The mechanism of risk assessment, complaint management procedures, fortnightly MIS reports and adequate customer services provide comfort to the rating. Further, appointment of ‘A’ category auditors and establishment of two board level committees augurs well for insightful monitoring.

The Net Capital Balance of the company clocked in at ~PKR 370mln with an equity base of ~PKR 138mln as at end Sep’20 whereas, the net profit after tax and net equity of the Parent Company stood at ~EGP 426mln and ~EGP 13.6bln. The topline of the EFG Hermes Pakistan lacks diversification in revenue stream and concentrated to the equity brokerage income which clocked in at ~PKR 128mln at end Sep’20 (SPLY: ~PKR 70mln). The Company earned profit amounting to ~PKR 0.49mln during 3QCY20 (3QFY19: ~PKR 56.6mln loss).

The rating are dependent on maintenance of rating benchmarks. Retention of key personnel, improvement in customer servicing tools and maintaining strong controls will remain vital. Meanwhile, growth in brokerage business, strengthening of internal controls and diligent monitoring of risks will remain critical.

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December 28, 2020

PACRA Maintains Entity Ratings of ACT Wind (Private) Limited

Lahore, December 28, 2020 (PPI-OT): Tapal, Ismail, and Akhtar groups have set up a 30MW wind power plant – ACT Wind (Private) Limited. The ratings assigned take into account its strong ownership profile with Tapal Group, Ismail Group, and Akhtar Group, holding equal stake in the company. The commissioning of the plant was achieved on 7th October 2016. The project is established under the Policy for Development of Renewable Energy for Power Generation, 2006 which offers a guaranteed internal rate of return, cost indexation, and pass-through tariff structure. The project revenues and cash flows are exposed to two main risks. First; wind risk. Under the upfront tariff regime, any variability in wind speeds is to be borne by the Company, due to which its cash flows may face seasonality.

However, historical wind speeds provide comfort that ACT Wind would be able to generate enough cash flows to keep its financial risk management. Second; operational risk. The Company has to maintain the plant’s capacity factor at 31% annually. Company has to maintain its availability as per contract and is ready to deliver electricity to CPPA-G, CPPA-G is liable to pay the whole tariff even if no purchase is done. Comfort is drawn from Hydrochina – the O and M operator – having both international and local market experience. The Company has adequate insurance coverage. The company’s reserve build-up mechanism through SBLC providing coverage of one time on its financial obligations till maturity provides comfort to the ratings.

The Company has been paying dividends which in times of need is an internal source of liquidity available. Company is timely paying its debt instalments and did not avail any deferment facility, which provides comfort. As at end June’20 company has debt equity ratio of 59.5% (FY19: 68.5%). Ratings further draw comfort as the company is managing its working capital needs through internally generated cash flows while short-term borrowings are nil. The Government has signed MoU with the IPPs operating under the Power Policy of 2002 and 2006 to review the terms of legal and contractual agreements.

Upholding operational performance in line with agreed performance levels would remain a key rating driver. Improving build-up of DSRA from internal sources, indeed aligning, and company’s repayment behaviour with its financial profile would be ratings positive. Furthermore, external factors such as any adverse changes in the regulatory framework and weakening of financial profile owing to delays in cash flow receipts may impact the ratings.

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December 28, 2020

PACRA Maintains Entity Ratings of United Ethanol Industries Limited

Lahore, December 28, 2020 (PPI-OT): Pakistan’s ethanol industry is largely export based owing to meager domestic consumption. The Country’s ethanol exports stood at USD 392mln in MY20, growing steeply by ~39% due to increased volumes. Prices in the global market have been fluctuating, due to the sudden closure of businesses worldwide, along with spike in ethanol demand. However, impact of subdued international ethanol prices was offset to a certain extent by devaluation of the Pakistani Rupee.

Though sugarcane production in Pakistan during MY19 and MY20 remain low, yet domestic distilleries posted stable profits. Margins for the industry inflated supported by increased demand in the international market due to Covid-19. Going forward, the industry’s margin are expected to remain stable on the back of increased ethanol prices, though raw material prices have increased on the back of lower sugarcane production and high cost of molasses.

The ratings reflect United Ethanol’s strong business profile emanating from robust margins and export oriented nature of ethanol industry. Strong margins at gross and operating level resulted in augmented profitability. The ratings draw strength from the Company’s association with United Group, which has an established presence in the Country’s sugar and allied industry. The Company’s revenue comprises primarily of exports. Since being acquired by United Group in 2016, the Company has been able to enhance efficiency through effective BMR implementation, yielding positive results. The Company has a leveraged capital structure supplemented by adequate coverages and effective working capital management. This keeps financial risk manageable.

Ratings are dependent on the management’s ability to effectively maintain margins during foreseen challenges expected to be faced by the ethanol industry. Prudent debt and liquidity management is critical for ratings. Any significant increase in debt, deterioration in coverages and/or drag of high advances extended to group concerns, if any, will impact the ratings negatively. Meanwhile, strengthening governance framework remains critical for ratings.

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December 23, 2020

PACRA Maintains Entity Ratings of Cherat Packaging Limited

Lahore, December 23, 2020 (PPI-OT): The ratings reflect Cherat Packaging Limited’s (“CPL” or “The Company”) established position as the leader in cement packaging sector. Over the years, the Company has built a strong business profile and now setting footprints in flexible packaging industry. This year marked as Second full year of operations of flexible packaging division. The Company is also active in exporting bags The Company has maintained healthy margins and profitability over the years despite its raw material being sensitive to exchange rate volatility.

The margins and, in turn, profitability of the Company has come under pressure during FY20. This is mainly due to depressed cement demand in the region amid COVID-19 pandemic but revival can be seen during 1QFY21. The Company succeeded to maintain its market share in bags manufacturing segment at ~30% even in unprecedented times. The long term prospects of the Company are linked with demand and expansion in local cement demand, cement demand outside of country and flexible packaging business.

The Company managed to earn healthy cash flows during the year. The downward trend of policy rates impacted the finance cost positively and in turn coverages improved. The Company has a leveraged capital structure where the long term debt is related to expansion activities. CPL managed to reduce its short term borrowings through effective working capital management. Strong liquidity position of the Company is also evident from the current ratio i.e. 7.7 times at end Jun’20. The Company’s association with Ghulam Faruque Group also bodes well for the ratings.

The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, maintaining sufficient cash flows and coverages is imperative for the ratings. Materialization of management’s strategy of diversification through flexible packaging into better margins and profitability is important. Any significant decrease in margins and/or coverages will impact the ratings.

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December 23, 2020

PACRA Maintains Entity Ratings of TPL Trakker Limited

Lahore, December 23, 2020 (PPI-OT): The ratings incorporate TPL Trakker’s prominent position in Pakistan’s tracking industry, emanating from its multifaceted product portfolio and sanguine technology infrastructure. As diversity becomes inevitable to sustain in its operating segment, the Company is gradually shifting towards business avenues that are more beneficial for company’s growth; the new segments have started to play their role however, incremental yet consistent cash flows remain pivotal. Recent developments precisely include acquisition of majority stake of Trakker Middle East LLC, and merger of TPL Maps and TPL Rupiya into TPL Trakker. Post-merger, the mapping division and locations based Services (LBS) have already started achieving above-par results.

Moreover, as per the Company’s plan, the process of going listed has been successfully completed – oversubscribed by 14.6% – hence, now stands as a public listed company from Aug’20. Underpinning the IPO, which got slightly delayed from its planned timeline, is the Privately Placed Commercial Paper (PPCP) which is providently redeemed and 20% remaining is deferred till Jan’21 under the SECP’s Relief Package. The Company will soon be adding another Sukuk to its liquid profile, however, most of the Company’s financial obligations have been deferred, including Sukuk (PKR 600mln), therefore diluting the pressure in the shorter horizon.

The Company still faces the pressure of high finance cost on account of its leveraged book, resulting in persistent bottomline losses in 3MFY21. The situation accumulates the impact of COVID-19 pandemic in the country which has led to severe economic disruption and demand deceleration. Currently, the Company’s financial risk profile exhibits a sigh of relief at all fronts; interest and debt coverages alongside capital structure and cash conversion cycles, endurance of which is necessitated.

The ratings are dependent upon the inclusion of new revenue streams, diversified product slate and Company’s aptness to address and unwind the factors impacting the risk profile. Improved performance indicators, including reversal of losses and sanguine financial discipline remain imperative to the ratings.

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