Karachi, March 29, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Syntronics Limited (SL) at ‘BBB+/A-2’ (Triple B Plus/A-Two). 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 repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. Previous rating action was announced on December 31, 2020.
SL is primarily involved in the manufacturing of Polypropylene Laminated Bottom Block Sacks used as packaging material mainly in cement industry. The company also manufactures polypropylene bags for its customers in sugar, poultry feed, flour, and fabric sectors. The ratings draw comfort from the company’s association with the ‘Premier Group’, demand for polypropylene packaging bags, and ongoing expansion plan. In an anticipation of increase demand for laminated cements sacks, the company has recently entered into expansion phase entailing construction of new unit that will increase the annual production capacity by two-fifth from July’2022 onwards. In addition, the company is also establishing Biaxially Oriented Polypropylene (BOPP) printing unit in order to tap customers in rice and poultry feed markets.
The increase in net sales during FY21 was due to higher volumes, partially offset by decline in selling prices which led to stable gross margins. However, with the slowdown in volumetric growth, sales increase has largely been a function of higher selling prices by the industry to offset the impact of raw materials due to rupee depreciation. Going forward, competition for market share gain is expected to increase further on account of notable capacity enhancements by the major players along with the vulnerability of profit margins to increase in imported raw material prices owing to geopolitical conflicts as well as higher finance cost burden.
Supported by improved cash flows generation, the company’s capacity to meet its financial obligations is considered adequate. Given the extended credit period availed by major customers, working capital cycle has room for improvement. The leverage indicators have depicted increasing trend on a timeline basis and projected to increase further owing to mobilization of new long-term loan to fund the expansion plan. Going forward, the ratings are dependent on optimal capacity utilization after the expansion, maintenance of profit margins and coverages, and rationalization of cash conversion cycle.
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