Karachi, March 30, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to KSF Trizone Industries (Pvt.) Limited (KSF). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur 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 ratings is ‘Stable’.
The assigned ratings take into account extensive industry experience of the sponsors and moderate business risk profile supported by adequately diversified product portfolio, comprising polypropylene woven bags, polyethylene bags (liner bags), tarpaulin, green and yellow net cloth, and Eva plastic compound; stable demand dynamics and established relations with the customers. Customer concentration risk is considered manageable as top-10 customers account for around one-fourth of overall revenue mix. The ratings also factor in steady growth in revenue on the back of higher volumes and improved selling prices of key products.
Given fragmented industry with a large number of small and medium-sized companies with insignificant market share, the company operates on low gross margins, however, the margins have gradually improved over the past three years mainly on account of favourable prices and some economies of scale. As the plastic granules prices are closely linked to international oil prices, Company’s gross margin will remain vulnerable to raw material prices without corresponding increase in end-products. The margins are also susceptible to recent increase in interest rates considering the Company has embarked on capacity expansion of polypropylene woven bags, green net cloth, tarpaulin, and Eva plastic compound that will be mainly funded through long-term borrowings.
Liquidity profile of the Company is considered adequate and is supported by internal cash flow generation. Working capital cycle of the Company is satisfactory. In line with the higher funds from operations during FY21, the Company’s capacity to meet financial obligations has improved. Equity base of the Company is supported by internal capital generation and interest-free loan from the sponsor which is repayable at the company’s discretion.
As the Company plans to mobilize term finance for capacity enhancement and short-term loan to fund post-capex working capital requirements, the leverage indicators are projected to increase going forward, although are expected to remain within manageable levels. Moreover, management has affirmed that the interest-free loan from sponsor will not be withdrawn over the rating horizon. The same will remain important for ratings.
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/