Press Release

VIS Reaffirms Ratings of Haleeb Foods Limited with ‘Negative’ outlook

Karachi, July 29, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Haleeb Foods Limited (HFL) at ‘A-/A-2’ (Single A-Minus/A-Two). The medium to long-term rating of ‘A-’ signifies good credit quality with strong protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Negative’. The previous rating action was announced on June 24, 2020.

The ratings assigned to HFL take into account moderate business risk environment underpinned by presence of the company in fast moving consumer goods (FMCG) segment coupled with positive demand prospects of dairy products in line with population growth & higher per capita consumption. On the other hand, heightened competition in value-added dairy and challenging operating environment of the organized segment leaves limited room for price maneuvering leading to pressure on margins. In addition, owing to presence of two strong market players, constituting around 90% market share of the documented dairy segment, reaping incremental share of the pie is considered an uphill task. Further, the financial risk profile of the company could not present a complete recovery during the rating review period with the company reporting negative bottom line since the last three fiscal years. The liquidity profile remained stressed in line with incurrence of loss leading to negative coverages; the rating will come under negative pressure if cash flow from operations does not turn positive in the due course. The same is a key rating concern for VIS given revenue generation in FMCG sector is highly correlated with spending on promotions and marketing.

The ratings incorporate erosion of equity base resulting in increase in leverage indicators during the rating review period; however, the leverage indicators still comfortably remain within the benchmark criteria for the assigned rating on account of minimal reliance on long-term debt. The ratings incorporate management’s initiatives towards change in revenue mix, product line extensions and revenue diversification that have reflected positively on the operational performance of the company during the rating horizon. The implementation of the aforementioned strategies has put HFL back on the road to recovery; however, complete turnaround of the same will be ascertained over time. Going forward, the ratings are dependent on improvement of brand identity and market penetration leading to revenue growth, mitigation of margin volatility, maintenance of leverage indicators at around current levels and rescuing of cash coverages along with evolution of sector dynamics post ongoing pandemic.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 or email at info@vis.com.pk .

Faryal Ahmed Faheem
Deputy CEO


Applicable rating criterion: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx

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 .