Karachi, August 10, 2022 (PPI-OT):VIS Credit Rating Company Ltd. (VIS) has assigned initial entity ratings of ‘A-/A-1’ (Single A Minus/A-One) to Agriauto Industries Limited (‘AGIL’ or ‘the Company’). Long Term Rating of ‘A-’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-1’ signifies high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’.
AGIL was incorporated and listed on the Pakistan Stock Exchange (PSX) in 1981. The Company is engaged in the manufacture and sale of components for automotive vehicles, motor cycles and agricultural tractors. AGIL is part of House of Habib (HoH), an established conglomerate headquartered in Pakistan. HoH has diversified operations across different sectors including Automobile (Indus Motor Company Limited, Thal Limited, AuVitronics Limited, Thal Engineering, Thal Boshoku Pakistan Private Limited), Building Materials (Shabbir Tiles and Ceramics Limited, Thal Laminates), Packaging (Paper sack, Jute), Plastics (AuVitronics Limited), Wholesale (Habib Metro Pakistan Private Limited) and Financial Services (Habib Insurance Company Limited). The sponsor profile of HoH has been incorporated into the assigned rating. As a listed entity, AGIL has to comply with Corporate Governance regulations for listed entities, as a result of which the Company Corporate Governance Profile is superior, which has been incorporated into the assigned rating.
AGIL possesses more than 3 decades of experience and holds an established track record in the auto parts industry, being the sole producer of car shocks and struts in the domestic market. AGIL has long-term technological collaborations in place with international spare part manufacturers. These collaborations translate in technological advantage and competitive edge for the Company.
VIS classifies business risk profile of AGIL in the high to medium category, given historical volatility in gross margins. This volatility in gross margins is mainly a product of volumetric offtake, while volatility in exchange rate also affects the gross margin, given significant dependence on imported raw material as the same comprises roughly half of the product costing. The Company’s revenue base does depict counterparty concentration, albeit the same is largely addressed by the presence of long term binding contracts and the fact that major institutional clientele constitutes AGIL’s related parties.
AGIL’s financial risk profile incorporates low gearing level, as the Company has historically operated debt-free. Recently, the Company has acquired debt, which is mostly short-term financing lines. Incorporating future debt projections, gearing is expected to rise in the range of 0.5-0.6 during the rating horizon. Given strong growth in sales, the Company’s cash flow coverage indicators are considered sound.
There is an adequate buffer of coverage of short-term borrowings through inventory and trade debts. Going forward, cash flow coverage indictors will continue relatively weaken during the rating horizon given the debt mobilization plans; however, these are expected to remain adequately high through the rating horizon. The assigned rating remains dependent on maintaining business and financial risk profile in line with benchmark for the assigned rating.
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/