Press Release
VIS Assigns Initial Ratings to Avanceon Limited
Karachi, September 30, 2019: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB-/A-2’ (Triple B Minus/A-Two) to Avanceon Limited (AL). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable with possible changes in the economy. The short term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Outlook on the assigned ratings is ‘Stable’.
The assigned ratings take into account the company’s consolidated presence in highly skilled business segment along with its two subsidiaries in Dubai and Qatar involving provision of automation and control solutions. The ratings are driven by relatively high business risk profile of the company emanating from long collection period of receivables, typical in the business undertaken by the company; the same has also put a drag on company’s liquidity indicators despite healthy gross margins. The ratings draw comfort from the company’s long-term strategic alliances secured with renowned original equipment manufacturers all across the globe. The ratings incorporate minimal reliance of the company on long-term borrowings, low leverage indicators, strong corporate governance framework and adequate debt service converges. The ratings will remain dependent upon company’s ability to timely recover the receivable funds coupled with maintenance of leverage indicators.
During FY18, the company’s profitability showcased improvement, despite a decline in margins on account of sustained positive momentum in revenues, one time forex gain and rationalized finance cost. The slight growth in AL’s revenue stream is a function of overall improved market penetration in the local market in securing higher quantum of projects and increase in product sales. Given imported raw material comprises majority of the production cost, the gross margins slightly declined during FY18 in line with increase in input raw material expense coupled with higher salaries and allowances given to production staff. Over the past two years, the liquidity profile of the company experienced a volatile trend; given the improvement in profitability metrics during FY18 was largely driven by one-off event of higher exchange gain, the same did not translate into the liquidity indicators with Funds from Operations recorded lower during FY18 in line with reduced margins.
For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Ms. Maham Qasim at 042-35723411-13.
Javed Callea
Advisor
Applicable rating criterion: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx