Karachi, December 15, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Treet Corporation Limited (TCL) at ‘A-/A-2’ (Single A Minus/A-Two) with ‘Rating Watch-Developing’ status. The medium to long-term rating of ‘A-’ denotes good credit quality; protection factors are adequate. adequate protection factors. Risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Previous rating action was announced on December 31, 2021.
The ratings assigned to TCL take into the account the group’s strong sponsorship profile along with the diversified revenue streams possessed owing to presence in different product segments. The revenue contribution from the flagship line, blades and razors, demonstrated downward trajectory in terms of production and volumetric sales owing to dampened demand in wake of current economic scenario adversely impacting the purchasing power of the target market. On the flip side, battery segment turned profitable in the outgoing year due to BMR, economies of scale and product line extensions.
The ratings reflect dip in gross margins in the outgoing year stemming from delay in transferring input cost to end consumers coupled with increased contribution by low margin generating battery segment in the revenue mix. The ratings reflect capex carried out on BMR in blades division for operational efficiencies and significant capacity enhancement for hemodialysis concentrates; positive outcomes from both initiatives are projected to contribute to financial flexibility of the company. On the other hand, high market rates scenario prevalent along with sizable funding carried, finance cost may put a drag on company’s profitability further going forward.
The ratings incorporate that the overall improvement in liquidity evidenced during the rating review period is solely due to adjustment in taxation expense/asset recording originating from profit or loss reported by TCL in different financial periods. Hence, the same is not a true representation of the company’s liquidity position. The current ratio and short-term borrowing coverages, albeit improved, continue to remain below 1.0x but are expected to improve provided planned equity injections materialize.
Stemming from financing procured for capital projects undertaken and to meet working capital requirements coupled with equity dip, leverage indicators have increased during the rating review period; the same continue to be higher than the rating benchmarks for the assigned rating. Furthermore, the demerger of the company’s battery segment into a separate company has faced delays and is still underway; the same is likely to finalized in the ongoing year.
The spinoff is expected to contribute to uplifting of the liquidity position along with assisting in deleveraging the company’s capital structure. The assigned outlook is underpinned by the commitment of the sponsors to inject and arrange to inject additional equity into the company to recoup earlier losses and provide space for growth; the same is expected to improve the leverage ratios and overall balance sheet of the company. Ratings are sensitive to the materialization of the recapitalization plans of the company by the sponsors.
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Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
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