Press Release

VIS Revises Entity Ratings of Inbox Business Technologies Limited
 

Karachi, June 08, 2021: VIS Credit Rating Company Limited (VIS) has revised the entity ratings of Inbox Business Technologies Limited (IBTL) from ‘BBB-/A-3’ (Triple B Minus/A Three) to ‘BB+/A-3’ (Double B Plus/A-Three). Medium to long-term rating of ‘BB+’ denotes that obligations deemed likely to be met. Protection factors are capable of weakening if changes occur in the economy. Overall quality may move up or down frequently within this category. Short-term rating of ‘A-3’ denotes timely payment of obligations coupled with satisfactory company fundamental and liquidity factors. Outlook on the assigned entity rating has been revised from ‘Stable’ to ‘Rating Watch-Developing’. Previous rating action was announced on March 18, 2020.

The ratings downgrade incorporates significant attrition in IBTL’s capitalization levels given sizeable write-offs of irrecoverable debts, advances and obsolete inventories in 2019 while higher depreciation losses booked due to pandemic-induced slowdown and delays in projects in the outgoing year led to further increase in accumulated losses turning the equity into negative. In addition to this, further revision in ratings has been restrained given strong sponsor profile (Patek private Limited which is a private investment holding company with shareholding vested in family members of Hussain Dawood Group) and the demonstrated financial support (in form of previous capital injection and liquidity support in terms of interest bearing long-term loan in the ongoing year). The negative equity would continue to impact the resource mobilization and contract getting ability. Ratings take note of the turnaround witnessed in profitability in 1Q’21 on the back of notable recovery posted in gross margins. Cash flow coverages, post two years of significant deterioration, have also depicted improvement in line with the positive bottom-line reported. Ratings also cover the developments seen in corporate governance profile with respect to new hiring at key senior level positions (including the position of CEO) and changes in Board of Directors (BoD). The outlook has been revised in view of unavailability of audited accounts since 2019.

Business risk profile is supported by good contracts in hand (including new mandates signed with telco sector), availability of specialized human resources and significant geographical reach which serves as barriers to entry and thereby providing competitive edge to the company. However, inherent volatility in execution of IT related work factors uncertainty along with past track record of receivables, delay in payments by government in public sector projects and high client concentration in revenues continue to remain the major operational risk factors. During the period under review, short-term borrowings (from a local commercial bank) were replaced with a three year long-term loan of Rs. 1.7b acquired from sponsors. The loan is repayable on demand by sponsor while markup payment is conditioned by positive bottom-line profitability. Furthermore, trade debts represents ~25% of total asset base while one-third of receivables is outstanding for a period of more than 90 days. Going forward, ratings would remain dependent upon the projected improvement in positive capitalization levels and continued sponsor support along with timely availability of audited accounts.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk .



Javed Callea
Advisor

VIS Entity Rating Criteria Industrial Corporates (April 2019):
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf

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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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited