Press Release

VIS Maintains Entity Ratings of Novatex Limited

Karachi, February 22, 2024: VIS Credit Rating Company Limited (VIS) maintains entity ratings of Novatex Limited to 'AA/A-1+' (Double A/A-One Plus). Medium to long term rating of 'AA' indicates high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Short term rating of 'A-1+' indicates highest certainty of timely payment; Short-term liquidity, including internal operating factors and /or access to alternative sources of funds, is outstanding and safety is just below risk-free government of Pakistan’s short-term obligations. Outlook on the assigned ratings has been changed to 'Positive' from 'Stable'. Previous rating action was announced on December 30, 2022.

Novatex Limited was incorporated in 1991 as an unlisted public company, which specialize in PET Resin, Preforms, and BoPET Films. The Company has recently added PET Flakes and Recycled PET to its product portfolio. The head office of the Company is located In Karachi with a plant in Landhi, Preform operations in Faisalabad and a new BOPET Film Line in Sheikhupura, Punjab. As part of the diverse Gani and Tayub group, Novatex has also expanded into power generation by investing in ThalNova Power Thar (Pvt.) Ltd.

Change in outlook incorporates a medium to low business risk profile for the chemicals industry, supported by the Company's strong market presence, capital-intensive products, and diversified local and international operations. The business risk profile is further reinforced by a significant market share locally, with stable demand from the Fast-Moving Consumer Goods (FMCG) and pharmaceutical sectors. However, Novatex’s sensitivity to PET Resin price fluctuations due to supply demand imbalances is also acknowledged.

Change in outlook also considers the profitability profile of the Company, which saw an increase in the top line driven by higher selling prices but experienced margin reduction due to escalating input and finance costs. The capitalization profile was constrained by the transfer of equity for its demerger with Nova Frontier, as well as higher debt drawdown for capital expenditure and working capital requirements. The liquidity position weakened with increased liabilities, although short-term debt coverage witnessed a marginal improvement. Meanwhile, the debt service coverage profile remains healthy despite a slight decline in FY23.

Going forward, ratings will be underpinned by further enhancement of the Company’s corporate governance framework. Moreover, Novatex's ability to achieve its projected plans and realization of cash flows from its diversification into new business segments will also be important considerations for future rating reviews.

For further information on this ratings announcement, please contact Mr. Saeb Muhammad Jafri (Ext: 202) or the undersigned (Ext: 201) at 021-35311861-64 or email at info@vis.com.pk.



Javed Callea
Advisor


Applicable Rating Criteria: Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .