Karachi, September 09, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has revised the medium to long-term rating of Waves Singer Pakistan Limited (WSPL) from ‘A-’ (Single A Minus) to ‘A’ (Single A) while maintaining the short-term rating at ‘A-2’ (A-Two). VIS has also assigned the preliminary instrument rating of ‘A-2’ (A-Two) to the proposed Commercial Paper (CP) issue of Rs. 1.2b, inclusive of green-shoe option of Rs. 200m. The medium to long-term rating of ‘A’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on November 13, 2020.
WSPL, the holding company, is principally engaged in retailing and trading of domestic consumer appliances and other light engineering products, besides the manufacturing and assembling of the same. The ratings take into account consolidated numbers of all group companies and incorporate that the marketing arrangements, having favourable impact on consolidated gross margins, will continue within the group companies. The assigned ratings take into account strong brand recognition and considerable market penetration, particularly in the deep freezer, refrigerator and sewing machine categories.
While top-line was impacted by decline in volumetric sales of key products during CY20 due to outbreak of COVID-19, the company has depicted notable growth in revenue and volumetric sales during 1H21. The company secured corporate orders for the supply of deep freezers, which will generate additional revenue in CY21. Profit margins are under pressure during the review period due to increase in production costs and lack of corresponding increase in selling prices. The ratings also factor in ongoing factory relocation that will allow complete integration of production processes and resolve the issue of debottlenecking along with its consequential efficiency gains and capacity enhancement of deep freezers and refrigerators that is expected to grow the top-line, going forward.
Increase in cash flows generation during the ongoing year bodes well for overall liquidity profile of the company, providing adequate coverage against financial obligations. Working capital cycle continues to remain stretched mainly due to increasing trade receivables, including hire-purchase receivables. The ratings draw comfort from manageable leverage on a consolidated basis despite increase in debt utilization over the period under review. Leverage indicators have depicted some improvement as a result of profit retention and equity injection through rights issuance.
Waves Builders and Developers (Pvt.) Limited (WBDL), a wholly owned subsidiary of WSPL, is developing residential apartment towers on the existing factory land. Construction and sale of apartments will take place in phases over 5 years. WSPL will transfer the land to WBDL who will mobilize a long-term loan to make payment to the parent company. Since majority of loan proceeds will be utilized by WSPL to early repay existing loan, consolidate leverage indicators are expected to remain around current levels by end-CY22.
Moreover, repayment risk is considerable manageable due to availability of 2 years grace period and repayments will be funded through project inflows from advance bookings and installments. Going forward, the ratings will remain sensitive to the timely completion of factory relocation in accordance with the plan, execution of apartments’ project within the stipulated timeline and budget, increasing trade receivables and inventories on a timeline basis, and vulnerability to foreign exchange risk.
WSPL is in process of issuing rated, unsecured, privately placed CP of up to Rs. 1.2b, inclusive of green-shoe option of Rs. 200m. The proceeds of the issue will be utilized by the company to meet working capital requirements; borrowings will not increase as CP will replace other borrowings. The Tenor of the issue is 9 months and will be redeemed at the face value on maturity date (270 days from the issue date). Indicative discount rate is 9-month KIBOR plus 1.75% per annum.
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
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/