Karachi, August 24, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial ratings of ‘BBB/A-2’ (Triple B/A-Two) to Veda Transit Solutions (Private) Limited. Outlook on the assigned ratings is ‘Stable’. 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 sound, while risk factors are small.
Established in 2017, Veda Transit Solutions (Pvt.) Limited (Veda) operates as a mass transit providing Company, which mainly focuses on government’s concessionary rates mass transit projects. Principal activity of the company encompasses procuring, organizing, maintaining and operating transport vehicles as per the contracts awarded by the Provincial Government bodies particularly PMA (Punjab Mass Transit Authority). Veda commenced its operations with Multan Metro Bus Feeder Project in 2017 and was recently awarded the Lahore Metro Bus System Project in 2021 by PMA.
Business risk profile is supported by limited level of competitive intensity for Government tender projects and favourable revenue model encompassing guaranteed receipt of payment against minimum guaranteed kilometers/bus/annum as per the contract awarded. Risk of rising input costs is mitigated through rate adjustment clause built in the contract for fuel, lubricants, tyres and salaries, and repair and maintenance costs. With stringent Key Performance Indicators in place, penalties would continue to impact the business risk profile of the company.
Assessment of financial risk profile incorporates revenue growth from Lahore project, constrained liquidity and profitability profile, and elevated leverage indicators. The revenue uptick in 11MFY22 was mainly attributable to contractual payments received against the Lahore Metro Bus System during the year. Around 56% of the revenue in 11MFY22 was contributed by the Lahore project with the remaining provided by the Multan project. With higher finance charges incurred on elevated quantum of debt to finance procurement of buses for Lahore project, profitability profile of the company weakened in 11MFY22.
Going forward, net margins are expected to gradually increase with projected reduction in finance costs over time consequently easing the pressure off the bottom-line. Meeting projected profitability indicators is considered important. Consequently, sensitizing the projections provided by the company, VIS forecasts pressurized debt servicing ability over the rating horizon. Hence, attaining a sustainable increase in the quantum of cash flows in line with higher projected profitability will be important to achieve an adequate level of liquidity profile. With reference to elevated leverage profile, reduction in the same over the rating horizon is deemed important supported by debt repayments and 100% profit retention.
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/