Karachi, July 29, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Novatex Limited (Novatex) at ‘AA/A-1+’ (Double A/A-One Plus). Long Term Rating of AA reflects high credit quality, and strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions. Short Term Rating of A-1+ indicates high certainty of timely payment; short term liquidity, including internal operating factors and/or access to alternative source of funds, is outstanding and safety is just below risk free Government of Pakistan’s short term obligations. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on July 10, 2020.
Novatex is a part of Gani and Tayub (G and T) group of companies; the group has more than seven decades of existence in diverse sectors including textile, plastic resin and power generation. Novatex operates in three business segments namely PET Resin, PET Preforms and BOPET Films. Moreover, Novatex (through a wholly owned subsidiary Nova Powergen Limited) has also pursued diversification by venturing in the power segment through investment in Thalnova Power Thar (Private) Limited (TNPTL), a project which is currently under implementation.
The assigned ratings reflect moderate business risk profile, healthy financial risk profile and adequate corporate governance framework given the private shareholding structure. Business risk is considered moderate as business risk profile derives support from diversified local and international operations (three business segments and exports to 45 countries), significant pricing power and favourable demand-supply dynamics in key export markets. Moreover, business risk profile is also supported by projected stable demand with end clients belonging to the FMCG (mainly food and beverages) and Pharmaceutical sectors.
Assessment of financial profile of the company reflects declining sales revenue of the company due to decrease in oil and downstream product prices as well as COVID-19 led slowdown of economic activities. Sales revenue is projected to stabilize at prior year level by the end of the ongoing year given gradual improvement in international and domestic market dynamics. Similarly, overall profitability profile of the company was impacted by inventory losses during FY20. However, during 9MFY21, profitability of the company reflected improvement on account of better margins (international and local), inventory gains and operational efficiencies due to adoption of cost cutting measures.
Going forward, margins are expected to revert to historic levels once low priced inventory ends. Liquidity indicators weakened in FY20 due to subdued profitability; however the same improved in 9MFY21 and are expected to remain in line with projected increase in overall profitability, going forward. Ratings also derive support from healthy capitalization indicators, despite elevated borrowings to finance expansions across all business segments. Assigned ratings remain dependent on maintenance of projected gearing and leverage indicators given planned expansions going forward.
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