Karachi: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Golden Harvest Foods (Private) Limited (GHFL) at 'BBB+/A2' (Triple B Plus/A Two). The medium to long-term entity rating of 'BBB+' reflects adequate credit quality, with protection factors deemed reasonable and sufficient. Risk factors may vary with economic changes. The short-term rating of 'A2' suggests a good likelihood of timely repayment of short-term obligations, supported by sound short-term liquidity factors. The outlook for these ratings is 'Stable', with the previous rating action announced on December 8, 2023.
According to VIS Credit Rating Company Limited, GHFL, a private limited company, operates as a manufacturer and trader of bakery products and frozen ready-to-eat meals. The company is authorized to produce and distribute products under the 'Dawn Bread' franchise, although its operations are currently confined to the Karachi and Balochistan regions within the domestic market. GHFL has two production facilities in Karachi and maintains an in-house distribution network that enables efficient service to its domestic clients. Additionally, the company has a diversified market presence across the Middle East, America, Asia, Europe, and Oceania.
The assigned ratings consider the steady growth of the bread industry, driven by the increasing demand for packaged and branded bread, fueled by urbanization, busier lifestyles, and a rising focus on hygiene. The convenience and longer shelf life of packaged bread are also boosting demand from restaurants and street vendors. However, the industry faces significant cost pressures, particularly due to volatile raw material prices, including a 32% rise in flour costs and a 39% increase in sugar prices from March 2023 to March 2024, alongside gas shortages. Despite these challenges, the demand for bread is expected to continue growing, with manufacturers needing to manage cost pressures and evolving consumer preferences to remain profitable.
The rating reflects GHFL's strong revenue growth, primarily driven by increased export sales and an improvement in local sales. Despite rising raw material costs, the company has maintained stable gross and operating margins. However, a decline in net profit was largely attributed to increased taxation and finance costs.
GHFL's liquidity and cash flow coverage improved, driven by reduced debt and enhanced operational efficiency. The debt service coverage ratio showed a modest increase, while a slight rise in equity, primarily from retained profits, strengthened its financial position. The reduction in debt led to improvements in gearing and leverage ratios. Moving forward, maintaining stable margins, cash flow, and debt coverage will remain important from the ratings perspective.