Karachi, July 29, 2021 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Haleeb Foods Limited (HFL) at ‘A-/A-2’ (Single A-Minus/A-Two). The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Negative’. The previous rating action was announced on June 24, 2020.
The ratings assigned to HFL take into account moderate business risk environment underpinned by presence of the company in fast moving consumer goods (FMCG) segment coupled with positive demand prospects of dairy products in line with population growth and higher per capita consumption. On the other hand, heightened competition in value-added dairy and challenging operating environment of the organized segment leaves limited room for price maneuvering leading to pressure on margins. In addition, owing to presence of two strong market players, constituting around 90% market share of the documented dairy segment, reaping incremental share of the pie is considered an uphill task.
Further, the financial risk profile of the company could not present a complete recovery during the rating review period with the company reporting negative bottom line since the last three fiscal years. The liquidity profile remained stressed in line with incurrence of loss leading to negative coverages; the rating will come under negative pressure if cash flow from operations does not turn positive in the due course. The same is a key rating concern for VIS given revenue generation in FMCG sector is highly correlated with spending on promotions and marketing.
The ratings incorporate erosion of equity base resulting in increase in leverage indicators during the rating review period; however, the leverage indicators still comfortably remain within the benchmark criteria for the assigned rating on account of minimal reliance on long-term debt. The ratings incorporate management’s initiatives towards change in revenue mix, product line extensions and revenue diversification that have reflected positively on the operational performance of the company during the rating horizon.
The implementation of the aforementioned strategies has put HFL back on the road to recovery; however, complete turnaround of the same will be ascertained over time. Going forward, the ratings are dependent on improvement of brand identity and market penetration leading to revenue growth, mitigation of margin volatility, maintenance of leverage indicators at around current levels and rescuing of cash coverages along with evolution of sector dynamics post ongoing pandemic.
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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