Karachi, October 05, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘BBB+/A-2’ (Triple B Plus/ A Two) to CBM Plastics (Private) Limited. 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. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on October 06, 2020.
Reaffirmation of the assigned ratings encapsulates strong position in the OMC segment, whereby CBM Plastics is the market leader in supplying ‘lube oil’ containers with a sizeable share of the segment. Concentration risk in the segment is on the higher side which is mitigated through long-term business relationships with clients. The plastics industry derives demand from critical revenue generating industries which are expected to grow in tandem with improved economic indicators of Pakistan, thus implying a positive industry outlook.
Assessment of financial risk profile incorporates positive momentum in profitability during FY21. The company recorded volume driven growth during the outgoing year and expects the same going forward on the back of expected improvement in macroeconomic environment. Slight decline in operating margins was witnessed during FY21 due to higher selling and administrative expenses; however net margins improved owing to lower interest rates. Improvement in profitability consequently translated into improvement in cash flow coverage indicators, including debt service coverage.
However, liquidity and capitalization indicators remain a rating constraint. Higher outstanding tax receivables have impacted the short-term liquidity profile of the company. Additionally, gearing and leverage levels are higher and are expected to remain elevated over the rating horizon due to long term financing to be undertaken for ongoing capacity additions and BMR initiatives. Going forward, improvement in liquidity profile and maintenance of capitalization indicators within prudent levels will be important for ratings.
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