Karachi, October 29, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Master Changan Motors Limited (MCML). The medium to long-term rating of ‘A-’ denotes good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.

MCML is principally engaged in the assembly and progressive manufacturing and sale of pickups and vans, passenger cars, and trucks. The assigned ratings incorporate MCML’s affiliation with experienced and sound sponsors – Master Motor Corporation (Private) Limited (MMCL) and Changan Automobile Investment (Shenzhan) Corporation Limited (Changan). Changan is one of China’s leading state-owned enterprises with international presence, while MMCL is part of well-diversified Master Group of Companies which has presence in mattresses and upholstery, home fashion, textile, chemical, power, automobile and auto part sectors.

Ratings also encapsulate positive momentum in the automobile sector experienced in the post pandemic recovery period along with strong projected growth in goods and passenger logistics. However, the industry remains exposed to changes in the economic environment; risks manifesting from developments including rupee devaluation, changes in interest rates, IMF program, and geo-political situation. Business risk profile is further supported through diversification and broad product base from van, pickup, sedan, and to-be launched SUV segment. The range of offerings provides competitive strength to the company.

Ratings incorporate significant revenue growth during FY21 driven by higher unit sales of pickup and vans along with uptick in passenger car sales. Gross margins depicted improvement on account of changes in sales mix with vans being the highest contributor, relative to prior years. However, operating margins remained constrained due to higher marketing and sales commission expenses, and significant increase in international freight charges on new materials. Finance costs reduced during the outgoing year on account of lower interest rates, supporting the net margins.

Consequently, cash flow coverage and debt servicing has improved on a timeline basis. Significant growth in customer advances, reflecting strong demand dynamics, supported sound liquidity. However, high level of customer advances pushed up the leverage while gearing remained within manageable levels. Ratings are dependent upon projected growth in turnover with significant decrease in gearing and leverage levels, going forward.

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/