Karachi, January 31, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has downgraded the entity ratings of Matco Foods Limited (MFL) at ‘BBB+/A-2’ (Triple B- Plus/ A-Two). Outlook on the assigned ratings is ‘Stable’. The long-term rating of ‘BBB+’ signifies adequate credit quality where protection factors are reasonably sufficient. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Previous rating action was announced on January 6, 2021.
Revision in ratings takes into account demand side weakening due to global supply chain crisis, increased competitive pressures, declining margins and increased gearing levels. Exponential increase in freight charges and global container shortage coupled with fluctuations in the exchange rate has impacted margins across the industry, however the impact has been more pronounced for MFL due to higher gearing. As a result, Company posted losses in FY21 and Q1’22.
MFL operational performance declined with capacity utilization lower at 66% (FY20 81%) on account of the company’s operational challenges including shortage of gas supply, higher electricity costs and nationwide lockdowns along with planned maintenance and shutdown of the plant. The Company’s working capital management also remained under pressure on account of higher freight costs and demand slow down, impacting margins adversely.
While topline contribution of rice glucose business increased, margin improvement remained constrained due to competitive pressures in the industry. Rating revision takes into account the decline in margins on a timeline basis. Moreover, the pressure on margins to continue given uncertainty around logistics and pandemic related disruptions along with inflationary pressures.
Gearing and leverage indicators depict a rising trend. Capitalization indicators are expected to remain elevated over the rating horizon due to ongoing capex for the cornstarch business. Company’s liquidity profile remains adequate. Cash flow coverage indicators deteriorated on account of losses posted in FY21 and in Q1’22. Debt service coverage ratio also declined, albeit remaining adequate. Going forward, improvement in margins and capitalization indicators 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
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