PACRA – Page 82 – PPI News Agency

January 29, 2018

PACRA Assigns Initial Entity Ratings to Mughal Iron and Steel Industries Limited

Lahore, January 29, 2018 (PPI-OT):Mughal is a known name in the steel industry. The company has diversity in its product slate; Rebars, T-Iron and Girders etc. The company profiling has significantly improved post listing on PSX. Mughal has a large board with one independent director (Mr. Salman Ali Shah) and has plans to increase the same in line with corporate governance requirements. Mughal has a sizeable capacity to an extent unutilized. The ratings take strength from strong brand value of Mughal Steel in the local industry.

The company has attained formidable market share; amidst rising demand emanating from large infrastructure projects. Demand from retail segment is also on the rise – earmarked by the management as future growth driver. The ongoing expansion projects – 100% financed through equity – have positioned Mughal to take advantage of rising demand. During FY17, Mughal witnessed dilution in margins as it competed with dumped steel products originating from China, however, the situation is likely to improve post anti-dumping duty.

Mughal unlike south players have to incur freight cost – that explains its differential in margins. The ratings incorporate Mughal’s adequate financial risk profile which has sustained over the years. The short term borrowings (net of cash) are largely aligned with the working capital. Moreover, leveraging has improved on account of successful capital market transaction (100% right issue at par) during the year, which has augmented equity. Going forward, with no major addition in debt, coverages are expected to remain robust.

The ratings are dependent upon the company’s ability to sustain its business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remain important. Moreover, strengthening of governance framework is vital.

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

January 29, 2018

PACRA Assigns Preliminary Rating to proposed TFC-11 of Jahangir Siddiqui and Co. Limited

Lahore, January 29, 2018 (PPI-OT):The ratings reflect JSCL’s strong risk absorption capacity emanating from a sizeable investment portfolio mainly financed through equity. These are pre-dominantly strategic in nature; notably most are listed with adequate liquidity. JSCL has built a non-strategic book of investments having a market value of over PKR3bln at end Sep-17. The company intends to penetrate in energy, petroleum and infrastructure segments. JSCL’s financial profile is supported by its strategic investments in financial sector – Banking and Insurance. The company benefits from ensuing dividend stream, which is expected to increase with improving underlying entities. Oversight framework for the strategic investments is improving. JSCL has a low leveraged capital structure.

JSCL intends to fund it’s new core investments through a combination of debt and internal sources given gestation period of most initiatives, these are primarily finance through long term debt instruments. JSCL has an established track record for issuance of debt instruments. Currently it has three outstanding instruments, while it is planning to issue another shortly. Given its regular income flow, interest and principal coverages remain good.

The ratings are dependent on the company’s ability to augment cash producers in its investment book. The improvement in the performance of the company’s strategic investments provides comfort. Diversification of the investment book among sectors would be beneficial. Financial discipline remains important for the ratings.

January 29, 2018

PACRA Assigns Initial Entity Ratings to H. Sheikh Noor-ud-Din and Sons (Private) Limited

Lahore, January 29, 2018 (PPI-OT):H. Sheikh Noor Ud Din and Sons (HSNDS), manufacturing arm of NRS International, is primarily engaged in manufacture of relief items and health items for international donor agencies. The ratings incorporate company’s long term association with international donor agencies such as UNHCR, UNESCO, Red Cross, and others. The company manufactures Long Lasting Insecticidal Nets (LLIN) under brand name DawaPlus®. Approved by World health Organization, it is the second most used LLIN with over 35% market share in the world.

LLIN represents over 60% share of revenues of the company. The company’s long term contracts along with strong margins provide comfort to sustainable healthy profitability. To cater the volatile needs of the relief industry, HSNDS has to maintain higher inventory levels which in turn give rise to higher capital needs. In FY17, increased working capital needs caused the short term borrowings to rise, impacting overall financial profile of the company. However, this remains strong.

Prudent management of working capital, while keeping efficient inventory levels to manage relief industry needs will be important. Meanwhile, strengthening of governance framework and financial transparency for better oversight of strategic affairs is considered essential. Adherence to agreed upon financial matrices (Short term borrowing to Net working capital greater than 70%, cash debt coverages of above 2.5x) will remain critical.

January 26, 2018

PACRA Maintains Ratings of Ibrahim Fibres Limited

Lahore, January 26, 2018 (PPI-OT):The ratings reflect IFL’s (i) robust ownership profile (Ibrahim group) that has demonstrated strong support, (ii) leading market position in the local polyester staple fibre (PSF) industry, and (iii) intentions to keep leveraging at low levels. Imposition of anti-dumping duty on PSF imported from China since Feb-16 has supported volumetric growth and margin – performance has also gained from by increasing demand.

Favourable movements in crude oil prices, and, PSF feedstock prices, provided further benefit to the company’s core margins. Given demand pattern and efficient production, IFL is expected to hold performance trend. In recent years, the company’s bottom-line has been a function of a reliable dividend stream of IFL’s investment in Allied Bank Limited (ABL), an associated company. Lately, the said investment has been sold to group holding company. Though the recurring stream of income from ABL would stop, the resulting cash flows are primarily being used to adjust debt levels. In turn, significant financial cost savings. Meanwhile improved core profitability would bode well for its financial profile.

The ratings are dependent on profitable operation of the company, supported by input prices and duty protection. Moreover, association with Ibrahim Group bodes well for the company. Going forward, induction of independent board members should benefit governance framework.

In order to formalize its corporate structure, sponsors of Ibrahim Group established a holding company – Ibrahim Holdings (Private) Limited (IHL). The new structure envisages consolidation of investments in IFL and ABL at holdco level, thus changing ownership and investment structure of investee companies. ABL’s ownership has been restructured as per plan, with IFL’s investment of ~PKR 14bln (at end-Sep16) in the company completely transferred to IHL. Restructuring of the group’s investment in IFL (currently via individuals) will follow. Nevertheless, sponsors remain committed to support IFL if need arises; the holdco structure should provide a convenient mechanism.

January 25, 2018

PACRA places IFS Rating of the Pakistan General Insurance Company Limited on Rating Watch – Outlook Negative

Lahore, January 25, 2018 (PPI-OT):PGI is braving with stressed times. The company, under the directive of SECP, halted underwriting operations. The regulatory and legal bodies have investigated PGI’s claims towards Pakistan Re-Insurance Company (PRCL). They determined a sizeable amount to be paid back to PRCL which the company has recently paid back. SECP also asked the company to fulfill other parameters to enable resumption of underwriting operations. The management represented that they have complied with all the parameters and now requested to resume operations – final nod is awaited.

In the meantime, the company has been pursuing recovery of receivables, while streamlining legal requirements. The company’s financial profile has suffered significantly on account of payment to PRCL and writing-off of receivables. However, the company has built a considerable investment book – which lends comfort. At the same time, PGI plans to raise a sizeable amount through right shares quantum/ timing of this injection would finally determine the financial risk profile of the company, going forward. PACRA would continue to monitor the developments and update its opinion accordingly.

January 22, 2018

PACRA Maintains Ratings of Fazal Weaving Mills Limited

Lahore, January 22, 2018 (PPI-OT):The ratings of Fazal Weaving primarily reflect irrevocable and unconditional guarantee on all obligations from financial institutions by Fazal Cloth Mills Limited (Fazal Cloth) – the parent. Fazal Cloth is rated by PACRA (LT Rating: A-) Fazal Weaving, a wholly owned subsidiary of Fazal Cloth, runs a small sized spinning unit. The recent capacity enhancement helped in rationalization of fixed cost translating into improved margins; hence, generating profit for the company. Fazal Weaving’s standalone risk profile is improving.

However, it is still constrained by, (i) high business concentrations – customer as well as geographical (ii) debt driven expansion thus keeping pressure on coverages, and (iii) highly leveraged capital structure. However, regular financial support from Fazal Cloth cushions the risk profile. With better utilization level, nourishing margins, and utilization of free cash-flows to settle debts, the management expects its standalone profile to improve. The rating are dependent on continuation of irrevocable and unconditional guarantee on financial obligation by the parent company. Meanwhile, improvement in stand-alone performance of the entity is considered important.

January 18, 2018

Pakistan Credit Rating Agency Limited Upgrades Entity Ratings of Chiniot Power Limited

Lahore, January 18, 2018 (PPI-OT):Chiniot Power Limited, a bagasse based IPP, was set up under 2006 Renewable Energy Policy. Chiniot Power, with in-house Operations and Maintenance (O and M), has a well-experienced team. The company has desired insurance coverage; providing comfort against operational risk factors. It has firm off-take agreements with NTDC (main buyer) and Ramzan Sugar Mills Limited, a group company.

The Government of Pakistan has given payment guarantee against dues from NTDC, subject to adherence to agreed parameters. This, along with the fact that Chiniot Power’s financial burden is designed to be met on operations of around six months in a year, is expected to keep financial risk manageable. Revenues and cash flows are primarily dependent upon maintaining plant’s availability and capacity factors at adequate levels.

This, in turns, requires timely availability of bagasse, which it is buying mainly from Ramzan Sugar Mills (~5.5 months need), minimizing fuel supply risk. The Company has arrangements with other mills to cover additional requirement of bagasse. Fuel cost in tariff is linked to international coal price. To date, the delta between coal and bagasse cost is favourable. This is not likely to change significantly. Since its CoD, the Company has outperformed its required parameters and has generated positive free cash flow from operations.

The company’s availability (required: 45%) and efficiency (required: 24.5%) remained above required benchmarks. Meanwhile, better repayment behaviour of NTDC to Chiniot Power provided comfort in managing its finances. To manage its working capital requirements, the Company used mix of internal cash flows and short-term borrowing. Short-term lines are fully utilized at end-FY17 to procure bagasse for off-season.

Repayment of Chiniot Power’s long-term debt is supported by monthly reserve build-up to fund quarterly installment. Further comfort is available through stand by letter of credit covering one upcoming installment. Meanwhile, Company is committed to build reserves (out of its profits) to cover whole debt servicing. This build-up is expected to be achieved by end-FY18; cushioning financial risk greatly.

Improving, indeed aligning, build-up of DSRA from internal sources, receipt pattern from power purchaser, debt repayment behaviour and liquidity cushion would impact the directions of rating Effective execution of plant operations by the in-house O and M team would remain important. Furthermore, external factors such as any adverse changes in the regulatory framework and weakening of financial profile of the company owing to delays in cash flow receipts, may impact the ratings.