Press Release
VIS Revises Entity Rating of Hi-Tech Lubricants Limited
Karachi, September 12, 2019: VIS Credit Rating Company Limited (VIS) has revised the entity rating of Hi-Tech Lubricants Limited (HTL) from ‘A/A-1’ (Single A/A-One) to ‘A/A-2’ (Single A/ A-Two). The medium to long-term rating of ‘A’ denotes good credit quality, with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamental and liquidity factors. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on February 18, 2018.
The ratings assigned to HTL take into account the established footprint of the company entailing adequate brand recognition in the lubricant sector. The assigned ratings incorporate moderate business risk profile of the company underpinned by relatively favorable competitive landscape of the sector and further diversification in revenue stream owing to formulation of oil marketing company (OMC); however, in terms of demand dynamics, the company revenues are under pressure due to slump in the overall automobile and construction sectors. The ratings also factor in currently low, though increasing, financial risk of the company as depicted by low leveraged capital structure.
Liquidity profile of the company weakened on account of decline in profitability metrics owing to slump in demand patterns and depressed margins. Given the company reported loss during the ongoing year, funds flow from operations (FFO) turned negative along with weakening of other liquidity indicators leading to revision in the short term rating. The liquidity position of HTL is, however, supported by investments in liquid avenues. The ratings are constrained by increasing intensity of forex exchange risk and transfer of its impact to final product. The same has resulted in drop in sale revenues, accumulation of inventory, suppressed margins and weak profitability and cash flow generation. The ratings will remain dependent on strengthening of leverage and liquidity indicators coupled with augmentation of topline supported by planned incremental sales generation from OMC operations.
For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.
Javed Callea
Advisor
Applicable rating criterion: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx