Press Release
VIS Assigns Initial Entity Ratings of Transfopower Industries (Private) Limited
Karachi, March 13, 2024: VIS Credit Rating Company Limited (VIS) assigns initial entity ratings to Transfopower Industries (Private) Limited (TIPL) of ‘A-/A-2' (Single A Minus/A Two). Medium to long term rating of 'A-' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of 'A-2' indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the ratings has been assigned as ‘’Stable’’.
Established in 1993 in Lahore, Pakistan Transfopower Industries (Private) Limited (TIPL), specializes in manufacturing power and distribution transformers and energy meters. It operates within the electrical equipment manufacturing industry and is an ISO certified entity with a 3 decades history. Owned by three engineer friends, the Company has two related concerns, Wire Manufacturing Industries Limited, an exclusive producer of 270-k grade material, and Potential Engineers (Pvt.) Ltd, which is involved in construction of power transmission lines.
The assigned ratings incorporates low to medium business risk profile of the engineering and transformers industry, characterized by its oligopolistic nature, steady demand, and limited competition. The industry experiences moderate cyclicality mitigated by stable demand from government owned utilities, premium private sector electricity distributors, renowned housing authorities, and large-scale manufacturers in Pakistan. Moreover, the Company holds 25% market share, making it a significant player in the industry. While the Company's sales to DISCOs, accounting for more than half, provides some stability to revenue stream however also exposes it to liquidity risks due to payment issues existing in the sector.
Ratings also incorporates the financial risk profile of the Company, supported by continuous growth in topline and significant increase in the profitability in FY23. The Company reported topline growth on account of higher average selling prices and sale of high-value products in FY23. Revenue growth also led to improvement in the gross margin and the bottom-line. Ratings also considers improvement in the capitalization metrics with a notable reduction in short-term debt and increase in equity base, though leverage remains high on account of higher trade payables. Coverage and liquidity profile is adequate and commensurate with the assigned ratings. Furthermore, stable outlook reflects a continuous revenue growth coupled with significant market presence and strong clientele.
Going forward, the ratings will remain sensitive to the improvement in the financial metrics as well as management of working capital with the settlement of the contingent liabilities as contracted.
For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.
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
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