Press Release
JCR-VIS Revises Entity Ratings of Universal Leather (Pvt.) Ltd.
Karachi, October 16, 2017: JCR-VIS Credit Rating Company Limited has downgraded the entity ratings of Universal Leather (Pvt.) Limited (ULPL) to ‘BBB/A-3’ (Triple B /A-Three) from ‘BBB+/A-3’ (Triple B Plus/A-Three). Outlook on the medium to long term rating is ‘Negative’. The previous rating action for ULPL was announced on May 20, 2016.
Given the downward trajectory in global leather industry, financial profile of ULPL has weakened on a timeline basis. With a large chunk of cow hide sales emanating through exports, topline of ULPL was a function of both lower volumes and prices. Decline in gross profits translated into narrowed margins and a sizeable loss on the bottom line. As a result, consistent losses have eroded the company’s equity over the past three years. Ratings take into account the weakening of the capitalization indicators emerging from equity replenishment lagging behind losses sustained. The ratings of ULPL are supported by the track record of sponsors having business cycle experience in leather industry.
Management foresees ULPL’s sales to gradually improve in the ongoing year. Nonetheless, profitability is expected to remain under pressure given lower selling prices and subdued demand of leather products. In order to reduce the magnitude of losses, management plans to cater to domestic leather demand; development of local demand would require long term sustainable efforts and will be monitored, going forward. While leverage indicators have trended upwards, borrowings are entirely short term in nature and matched by sizeable stock-in-trade which, given the inventory revaluation risks, is being reduced on a timeline basis.
For further information on this rating announcement, please contact the undersigned (Ext: 201) at 35311861-70 (10 lines) or fax to 35311873.
Javed Callea
Advisor
Applicable Rating Criteria: Industrial Corporates (October 2003)
http://www.jcrvis.com.pk/images/IndustrialCorp.pdf