Karachi, April 22, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Automobile Corporation of Pakistan (AUTOCOM) at ‘BBB/A-2’ (Triple B/ A-Two). Outlook on the ratings has been revised from ‘Rating Watch-Negative’ to ‘Stable’. The 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. The 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. The previous rating was announced on May 21, 2020.
AUTOCOM is a family owned business with principal activities of the company including fabrication, designing, repairing and servicing of trailers, tankers and other heavy vehicles through two facilities at West Wharf and Port Qasim. The product line of the company comprises petroleum tankers, trailers and other specialized vehicles (refuelers, garbage compactors, and municipal vehicles).
The revision in rating outlook takes into reflects maintenance of the financial risk profile in line with the parameters for the assigned ratings. Despite the onset of COVID-19, the company was largely able to sustain its net sales in FY20 in comparison to the preceding year. Given the slowdown in demand from private customers on account of COVID-19, the management revised its business strategy by targeting corporate clients and government contracts to secure confirmed business.
Acquisition of orders from corporate clients enabled the company to sustain its topline. Overall profitability improved during the same period due to sizeable reduction in employee related expenses. Profitability indicators have also improved in 1HFY21 on the back of a sizeable order from a government client and lower raw material costs on account of effective raw material procurement strategy. Going forward, future profitability is contingent upon the projected growth in the volumetric sales.
Liquidity profile is considered satisfactory in the light of sufficient cash flows to service outstanding debt obligations. However, limited cash flows and equity base inhibit the company’s leveraging ability. The company is expanding its capacity at Port Qasim with the addition of two new production sheds. Fresh investment on plant and equipment is also being made to improve the cycle time of production. However, this investment will be financed primarily through internally generated funds. Given low debt drawdown and projected profitability, capitalization indicators are expected to remain sound over the rating horizon. Going forward, key rating sensitivities include improvement in the quantum of future cash flows and profitability, along with maintenance of sound capitalization and liquidity indicators.
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
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