Press Release
VIS Reaffirms Entity Ratings of Muhammad Shafi Tanneries (Pvt) Limited
Karachi, June 24, 2025: VIS Credit Rating Company Limited (VIS) reaffirms entity ratings of Muhammad Shafi Tanneries (Pvt) Limited at ‘BBB+/A2’ (Triple B plus/A two). Medium to long term rating of ‘BBB+’ indicates Adequate credit quality; Protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short term rating of 'A2' indicates Good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remain ‘Stable’. Previous rating action was announced on March 05, 2024.
Muhmmad Shafi Tanneries (Private) Limited (‘MSTL’ or ‘the Company’) was incorporated in 1972, as a partnership concern and later converted into a private limited company in 1988. MSTL is a family-owned company engaged in manufacture and export of finished leather made from goat and sheep hides, which is used in making of shoes, gloves and fashion articles. MSTL belongs to Shafi Group which has presence in the textile, food and footwear sectors. The registered head office of the Company is located at Lalazar, Opposite Beach Luxury Hotel, Karachi and factory is located at Haroonabad, SITE, Karachi.
The assigned ratings factor in the medium business risk profile of the leather industry in Pakistan, which is characterized by its export-oriented nature, cyclicality, and sensitivity to rising energy costs. Additionally, shift in consumer preference towards synthetic leather is also posing demand-side challenges for the sector.
The ratings are primarily based on the Company’s conservative capital structure, with zero long-term debt as of 9MFY25 and minimal short-term borrowings. Sales has demonstrated strong growth, with a 3-year topline CAGR of 42% as of FY24 with historic high-capacity utilization in FY24 based on improved demand, although a loss of momentum was witnessed in 9MFY25. The lower topline along with cost pressures led to an operational loss and negative funds from operations (FFO) in 9MFY25, which is in line with the overall cyclicality of the sector. The insufficient debt service coverage from operational cash flow is a point of concern from the rating perspective. However, liquidity remained strong, supported by a high current ratio and satisfactory liquid assets available on the Company’s balance sheet to meet its financial obligations.
Going forward, measures to mitigate cyclicality and recovery in operational cash flow, alongside maintaining the conservative capital structure would remain crucial from ratings perspective.
For further information on this ratings announcement, please contact on 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