VIS Issues Initial Ratings for Service Sales Corporation with Stable Outlook

Karachi, VIS Credit Rating Company Limited has assigned initial entity ratings to Service Sales Corporation (Pvt.) Limited (SSCPL), rating its medium to long-term credit quality as 'A-' and short-term certainty of timely payment as 'A-2'. These ratings reflect the company's good credit quality and sound liquidity factors, indicating a stable financial outlook.

According to VIS Credit Rating Company Limited, the ratings assigned to SSCPL consider several aspects of the company's operations and market position. The 'A-' rating denotes good credit quality with adequate protection factors, though risk factors may vary with economic changes. The 'A-2' short-term rating highlights SSCPL’s good access to capital markets and minor risk factors, underpinning a stable outlook for the company's financial health.

Service Sales Corporation, established in 1965 and based in Lahore, operates primarily in the retail and wholesale of footwear products and related accessories. The company’s retail operations include the Ndure brand and an e-commerce channel, with 13 stores on company-owned properties and others on leased spaces. Its wholesale business features the Calza and Liza brands, distributed across 800 independent retailers nationwide, supported by eight Wholesale Business Centers and additional e-commerce channels.

The ratings reflect the medium to high business risk profile of the footwear industry, characterized by high cyclicality and intense competition. Consumer preferences and economic conditions significantly influence demand, while the sector enjoys low regulatory and technological risks, which support the overall business risk profile.

Financially, SSCPL has demonstrated sustained sales growth, driven by higher pricing to offset a contraction in volume sales in FY23. The company has effectively managed increasing input costs, improving its gross and operating margins. Despite a high proportion of operational rental leases elevating the capitalization profile, the company maintains adequate liquidity and coverage profiles. However, a slight contraction in coverage metrics in FY23 due to increased financial charges was noted.

VIS also highlighted the company's future prospects, noting that the ratings are sensitive to SSCPL's ability to align its capitalization and debt service metrics with the assigned ratings. The support of consistent growth in export sales from subsidiaries will also be crucial for maintaining and potentially improving these ratings.