Lahore, September 27, 2021 (PPI-OT):Service Industries Limited (SIL) has a twofold profile; one as a hold-co and second as operate-co. As an operate co it is a renowned and well established name in footwear and tyres and tubes industry. The ratings reflect Company’s longstanding presence, emanating from strong foothold in its given business segments. The Company have built itself as a prominent player in the market through provision of high-quality products and affirmation of strong brands under its domain. It distinguishes itself by having reasonable level of diversification in its revenue streams coming from tyres and tubes (2 and 3 wheeler and agri tyres) and footwear Industry, this bodes well for the overall Company’s business prospects.
Additionally, international presence in its respective niche provides competitive edge to the company’s distinct position in the market. Despite COVID-19 outbreak and subsequent lockdown, the Company gained functionality before the other businesses due to its presence in export market. Where pandemic became a hindrance for exports, it was curtailed by rising local demand particularly in tyres segment. The sponsors are keenly focused towards formalized group structure, sustainable business model and eyes for possible expansions in new business avenues. SIL has demonstrated upward trajectory in its business volumes amid stiff competition on a timeline basis.
During CY20, revenues witnessed a dip on standalone basis due to the demerger of its Muridke footwear export unit into a newly formed subsidiary; ‘Service Global Footwear Limited’. The business arm at consolidated level is a comfort. Moreover, the company is paving its way to enter ‘all steel radial tyres of trucks and buses’ market soon. This will be through an investment of $250mln – made in phases over six years horizon – with Chinese investors through a joint venture; ‘Service Long March Tyres (Pvt) Ltd’, established in early 2020 year, sales of which shall be majorly export based as well as to cater the internal demand. This is indeed a significant project.
Given the Company’s expansion plans, financial risk profile is reflecting this, which the company holds the potential to manage. As a manufacturing concern, overhead costs are inherent to the business hence keeping the Company’s bottom-line range bound. The Company en routes low-cost debt funded expansion which along with reduction in interest rates will keep the debt profile adequate. Rating also incorporates strong sponsor support augmented by sound governance practices over the years.
The ratings are dependent on sustenance of Company’s leading position in its respective business segments and consistent growth. Profitability in line with business expansion; prudent working capital management and maintenance of coverages amidst expansion is necessitated. Any significant change in the financial risk profile shall remain imperative.
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