VIS Maintains Entity Ratings of Matco Foods Limited


Karachi, January 06, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Matco Foods Limited (MFL) at ‘A-/A-2’ (Single A-Minus/ A-Two). Outlook on the assigned ratings has been revised from ‘Positive’ to ‘Stable’. The long-term rating of ‘A-’ signifies good credit quality and adequate 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 sound. Access to capital markets is good. Risk factors are small. Previous rating action was announced on December 10, 2019.

The segment where MFL operates, Hotels, Restaurants and Catering (HORECA), has been badly affected by the pandemic-related lockdown. Tourism related sales and demand has been affected, albeit there has been a surge in demand for home-based consumption, and retail market has seen a jump in demand as a result of stockpiling. Nevertheless, demand side weakening has been noted, which has been factored into the outlook revision. The trend has also reflected in the country’s export figures, with rice exports during Jul-Oct’20 declined by 29% and 21% in terms of value and volume respectively.

MFL’s operational performance improved in FY20, as reflected by increased capacity utilization and a 44% growth in topline. Nevertheless, with demand weakening in the international market, contraction in gross margin was noted, which has continued into Q1’FY21. Given the pressure on gross margin, higher finance cost and lower other income and exchange gain, the company’s net margin contracted to 1.3% (FY19: 5.3%). Moreover, sizable exchange loss and unusual losses on FE-25 loan agreement, manifesting from exchange rate volatility, made the bottom line negative in Q1’FY21. As per management, margins are expected to remain under pressure in Q2’FY21 and post recovery in the subsequent quarters.

As an export-oriented company – with exports contributing 77% of the topline – the company is entitled to debt at concessionary rate under SBP’s export refinance policy. Accordingly, the company’s cost of debt is low, and as such the positive impact from the drop in interest rates was marginal. FFO has contracted in the most recent period, as a result of which cash flow coverage indicators have been impacted. Nevertheless, this is expected to be a short term trend. Assuming gradual recovery in gross margin throughout FY21, we expect the DSCR to post improvement in subsequent quarters.

Gearing and leverage indicators posted marginal increase, which is mainly attributable to the business volume driven growth in debt and limited growth in equity amidst depressed profitability. Going forward, capitalization metrics warrant improvement, as they stand on the higher side.

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

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