Karachi: VIS Credit Ratings Company Ltd. (VIS) has reaffirmed the entity ratings of Sindh Modaraba ('SM' or the 'Modaraba') at 'A+/A1' (Single A Plus/A One). The medium to long-term rating of 'A+' signifies good credit quality with adequate protection factors, though risk factors may vary with potential changes in the economy. The short-term rating of 'A1' indicates a strong likelihood of timely repayment of short-term obligations, underpinned by excellent liquidity factors. The outlook on the assigned rating remains 'Stable', with the previous rating action announced on September 06, 2023.

According to VIS Credit Rating Company Limited, the ratings assigned to SM reflect the strong sponsor profile of the Government of Sindh (GoS), which holds a 94.3% stake in SM through Sindh Modaraba Management Limited (SMML). These ratings also consider the financial stability and management expertise of SMML. SM, a publicly listed Modaraba on the Pakistan Stock Exchange (PSX), provides Shariah-compliant Islamic financing to its clients and operates from its head office in Karachi, with a branch in Lahore.

The ratings take into account recent improvements in profitability metrics, aligned with the rise in interest rates during the past period. Additionally, the ratings are supported by anticipated growth in the financing portfolio, buoyed by a favorable economic environment expected to stimulate lending and financing activities. However, the assigned rating will remain contingent upon SM's ability to sustain profitability in a low-interest-rate environment while maintaining asset quality. While the Modaraba's liquidity and capitalization profiles remain sound, SM plans to divest from short-term investments due to declining interest rates, which will impact its liquidity going forward. In FY24, changes included onboarding a head of marketing to drive growth, implementing technological advancements to streamline operations, and the re-election of Board members. The impact of these changes on overall operations will be a key factor in future ratings considerations.