Press Release

JCR-VIS Reaffirms Entity Ratings of Universal Leather (Pvt.) Ltd.

Karachi, May 04, 2015: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Universal Leather (Pvt.) Limited (ULPL) at ‘BBB+/A-3’ (Triple B Plus/A-Three). Outlook on the medium to long term rating is ‘Stable’. The previous rating action for ULPL was announced on April 9th 2014.

Leather industry in Pakistan is an export-oriented industry contributing ~5.4% of the total export earnings and ~5% of the GDP. During FY14, leather exports grew by 11% in comparison to the preceding year. However, the industry is presently facing a number of challenges including slowdown in the Eurozone, which is a major export destination for Pakistan’s leather industry. In addition, steep decline in Euro/PKR parity subsequent to year-end 2014 has impacted margins of industry players. Resultantly, there has been an industry-wide consolidation with smaller players exiting the market which will allow more established players to benefit, going forward.

The rating of ULPL derives strength from track record of sponsors who have extensive experience in the leather industry. Given the favorable demand for cow leather, ULPL’s turnover witnessed healthy growth in FY14. Client wise concentration in sales is on the higher side with top ten clients generating around four-fifth of total sales while exports to Eurozone represent two-third of total sales. During 1HFY15, sales were lower than the corresponding period last year on account of depreciation in Euro as well as a decline in quantity sold.

Gross margins witnessed a significant decline in FY14 on account of increase in prices of cow hides. Margins remained under pressure in 1HFY15 due to Euro depreciation; however, management expects pressure on margins to be mitigated in view of recent dip in the cost of hides. Profitability is also projected to be favorably impacted in view of the recent decline in interest rates and oil prices. Borrowing requirements, entirely short term, have increased on a timeline basis; borrowings and trade payables balance is however well matched by stock-in-trade and trade debts.

For further information on this rating announcement, please contact the undersigned (Ext: 501) at 35311861-70 (10 lines) or fax to 35311873.


Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (October 2003)

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 2015 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .