Press Release
JCR-VIS assigns Positive Outlook to Entity Ratings of Novatex Limited
Karachi, December 05, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has maintained entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Novatex Limited (Novatex). Long Term Rating of AA- reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions. Short Term Rating of A-1 indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. Previous rating action was announced on September 25, 2017.
Novatex belongs to the G&T group of companies with the group having existence of more than six decades in sectors including textile, plastic resin and power generation. Novatex operates in three business segments namely PET Resin, PET Preforms and BOPET Films. Moreover, Novatex (through a wholly owned subsidiary Nova Powergen Limited) is also in the process of diversification in the power segment through investment in Thalnova Power Thar (Private) Limited (TNPTL).
Assigned ratings incorporate the company’s dominant market position in all three business segments, low business risk, healthy financial risk profile and adequate corporate governance framework. Low business risk is evident from operations in relatively stable consumer packaged goods end markets, mainly food and beverages. Resultantly, all three business segments have witnessed healthy annual growth rate over the last 5 years. Low business risk profile is evident from changing preference towards packaged goods, vertical integration vis-à-vis competition, sizeable barriers to entry, diversified operations, limited risk of currency devaluation and strategic long-term supply contracts with major beverage manufacturers. Key risk factor includes risk of inventory loss and volatility in PET resin prices resulting from temporary supply and demand imbalances due to lumpy capacity additions. However, business risk profile draws support from favorable medium term demand dynamics of key export markets and strong pricing power in the local market. The assigned ratings incorporate strong ability to pass through costs to customers avoiding material impact on operating margins.
Assessment of financial risk profile incorporates robust profitability growth in FY18, healthy liquidity and strong capitalization indicators. Liquidity profile is supported by sizeable jump in cash flows and strong debt servicing ability. Moreover, lower than projected outflow for capital investments will result in healthy cash accumulation over the rating horizon. Despite debt drawdown for expansion plans, gearing and leverage levels continue to be on the lower side given growth in equity base on the back of profit retention. Given the sizeable exports, access to low cost funding is also a competitive advantage. Ratings derive support from company’s conservative financial policy of primarily undertaking future capital investments from internal sources. Sustaining financial performance will be a positive rating driver.
For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.
Javed Callea
Advisor
Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf