Lahore, January 30, 2023 (PPI-OT):The assigned ratings of Loads Limited reflect the niche industry positioning in the auto parts industry. With a long-lived presence of up to four decades in the automotive industry, the Company has established a considerable forte in the domestic market along with a committed client base. Pakistan’s automotive and allied industry witnessed a dip owing to economic instability, persistent inflationary pressures and policy rates hikes. The rising input costs of imported raw materials suppressed the profitability of all players in the automotive segment. The Company employs its specific business model i.e., working through subsidiaries catering to current product suite.
Loads Limited has segment concentration risk with 3W accessories contributing majority to total sales. Though, the Company has a long association with reputed OEMs, the revenue base remains concentrated with top two customers contributing to ~81% to its operating revenue and a single customer contributing to ~54% in FY22. The high dependence on one of the OEMs exposes the Company to fluctuation in 3W sales and profitability dependent on the key customer’s growth plans. Moreover, Loads Limited is gearing towards further diversification and is in the process of completing Alloy Wheels plant under Hi-Tech Alloy Wheels Limited. The ramp-up of operations and the ability to derive the envisaged benefits will remain crucial from the credit perspective.
On the financial profile side, the Company is managing its leveraging on average within ~40% since Jun’19. However, in order to meet the working capital requirements, the Company has issued Islamic Commercial paper (ICP) amounting PKR 500mln. Despite being unsecured, the structure of the ICP is designed in such a way that for timely payment of principal and rentals at maturity, an issuing and paying account (IPA) would be maintained with IP Agent (Bank Islami). To ensure the timely funding of IPA, the Company will issue irrevocable standing instructions to Habib Metro Bank to entrap the throughput of sales to Indus Motor (One of the major customers of Loads) maintained with the Bank and divert the cash receipts to the IPA.
The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remains important. Moreover, upholding of governance framework is vital.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com