Lahore, VIS Credit Rating Company Limited has reaffirmed the entity ratings of Matco Foods Limited (MFL) at 'BBB+/A-2', indicating a stable outlook with sound liquidity and company fundamentals. The long-term rating of 'BBB+' reflects adequate credit quality with reasonable protection factors, while the short-term rating of 'A-2' suggests good certainty of timely payments.
According to VIS Credit Rating Company Limited, MFL's primary business involves the processing and export of rice and related products, including Basmati rice, Irri rice, rice glucose, rice protein, and various food items under the brand name Falak. The company has also recently expanded into the Corn Starch business. MFL operates five rice processing and milling plants and a corn starch plant, offering a range of services from paddy drying to husking facilities.
Rice, as a major staple food and agriculture export of the country, experienced a decrease in production in FY23, mainly due to floods that affected overall production levels and exports. However, with better crop projections for FY24, exports are expected to rise. The ratings consider the natural cyclicality in rice availability and its impact on business risk.
MFL has shown growth in sales over the years, with net sales increasing by approximately 62% during FY23. This growth was mainly driven by higher product prices and sales from the newly added cornstarch plant. Despite last year's floods, MATCO remained resilient, largely due to its predominant market presence in the basmati rice category, which is primarily cultivated in the Punjab region. The floods mainly affected areas in the Sindh province. MATCO's customer base for basmati exports spans across 49 countries worldwide.
The company managed to alleviate pressure on gross and net margins through higher product prices and exchange gains. However, coverages and liquidity ratios have recently trended downwards, albeit remaining above the minimum threshold. An increasing trend in gearing has been observed over the years, but the company's management projects a gradual decrease in leverage indicators as there are no plans to mobilize long-term financing in the medium term. The ratings remain sensitive to improvements in overall financial indicators.