KARACHI:VIS Credit Rating Company Limited has maintained the entity ratings of .Shakarganj Food Products Limited at ‘triple B plus/A-three.
VIS has also maintained the instrument rating at triple B plus. The medium to long-term rating of ‘BBB+’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-3’ denotes timely payment of obligations coupled with satisfactory company fundamental and liquidity factors. Outlook on the assigned ratings has been revised from negative to stable. Previous rating action was announced on November 23, 2020, said release on Tuesday.
The ratings assigned to SFPL take into account the company’s strong sponsor profile, comprising renowned business concerns including Sharkarganj Limited, Bank-Islami Pakistan Limited and Crescent Steel and Allied Products Limited.
The ratings incorporate moderate business risk environment underpinned by presence of the company in fast moving consumer goods segment coupled with positive demand prospects of dairy products in line with population growth & higher per capita consumption. However, market domination by two strong players makes the market challenging for the second-tier players. Moreover, the industry margins remain sensitive to exchange rate risk and price risk pertaining to imported skimmed milk powder and edible oils.
The ratings incorporate recovery of financial indicators; growth in revenues and margins was manifested in line with improved distribution strategies in tandem with better pricing and shift in revenue mix. However, being an FMCG the ratings remain sensitive to SFPL’s nominal net margins on account of significant promotional expenses.
Moreover, the ratings reflect improvement in liquidity profile with adequate debt service coverage coupled with healthy fund flow from operations; the latter is considered adequate in terms outstanding obligations. Further with the company’s bottom reverting back to positive, gearing and leverage indicators improved slightly given there was no noticeable increase in debt utilisation. However, debt leverage still remains on a higher side on account of sizable trade payables.