Karachi, November 18, 2021 (PPI-OT):VIS Credit Rating Company Ltd. (VIS) has maintained the entity ratings of Universal Leather (Pvt) Limited (ULPL) at ‘BBB-/A-3’ (Triple B Minus/A-Three). The long term rating of ‘BBB-’ signifies adequate credit quality, reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. The short-term rating of A-3 indicates satisfactory liquidity and other protection factors that qualify entities/issues as to investment grade. Risk factors are larger and subject to more variation; however timely payment is expected. Outlook on the assigned ratings has been revised from ‘Rating Watch Negative’ to ‘Positive’. Previous rating action was announced on October 01, 2020.
Revision in rating outlook takes into account ULPL’s recovery in its performance metrics and overall growth observed in leather exports post ease in COVID-19 lockdown measures. Pakistan’s leather-based exports observed recovery and posted modest growth in FY21 vis-à-vis FY20. Further growth is also seen in 2MFY22 period. Going forward, leather products demand is expected to stay sound on account of better demand prospects generating from US and European countries following lifting of lockdowns as major segment of population has been vaccinated. ULPL’s sales are largely export based with Europe as the main market for its product. While client concentration in sales is high, the same is mitigated through established business relationships. The Company has attained ESG related certifications that will help enhance its image and aid in fetching higher export volumes.
Assessment of financial risk profile incorporates improving profitability and leverage indicators with adequate liquidity profile. Topline of the company posted modest growth during FY21 mainly driven by better prices achieved of cow skin in export market. Significant uptick in gross margins was recorded on the back of higher average selling prices and lower prices of key input. Profitability was further supported by lower finance cost and one-off event in other income. The Company’s debt profile is short term in nature with improvement seen in capitalization indicators.
Liquidity profile of the company improved in the outgoing year yet elongated working capital cycle is a constraint. The ratings are dependent on the Company’s ability to sustain business margins through operational efficiencies and product quality. Prudent management of working capital cycle and maintaining leverage indicators in line with assigned ratings will be important.
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/