Press Release
VIS Assigns Initial Entity Ratings to Mehran Plastic Industries (Private) Limited
Karachi, April 30, 2021: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to Mehran Plastic Industries (Private) Limited (MPIL). The long term rating of ‘BBB+’ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur 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. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
MPIL is engaged in the manufacturing of PET Preforms, PET bottles, PET Closures (caps) and Polycarbonate Bottles (Bulk Water bottles) for variety of customers operating in the bottling, beverages and food industry. The production facility of the Company is located at SITE Karachi. MPIL is a family owned enterprise.
The assigned ratings take into account the moderate business risk profile of the company. MPIL primarily caters to the bottling and consumer packaged goods industries, which have exhibited relatively stable product demand during various economic cycles. The growth outlook in these industries continues to remain sound going forward given the population growth and demographics of the country. Hence demand risk is low. Competitive advantage of the company lies in providing high quality standardized products. Volatility in raw material prices and exchange rates are the major risks that the company faces on account of reliance on imports and single local supplier in case of raw material. Client wise concentration is exhibited in company’s sales. However, comfort is derived from long standing business relationships with the major clients. Overall governance and control framework depicts room for improvement.
Assessment of financial risk profile indicates declining profitability indicators, satisfactory liquidity profile and adequate capitalization indicators. Net Sales of MPIL have grown at a healthy CAGR of 26.8% in the period from end-FY17 to end-FY20. However, gross margins have witnessed reduction on a timeline basis due to increase in prices of raw materials and rupee devaluation. In the absence of gain on sale of assets coupled with the reduction in gross margins, overall profitability and net margins have also declined in FY20 and 1HFY21 in comparison to the corresponding period in the preceding years. Going forward, management expects sales revenue to increase on account of expected improvement in macroeconomic environment and growing population paving way for increased demand of consumer goods. Liquidity profile is satisfactory in view of sufficient cash flows to service outstanding debt. The company’s debt comprises interest free loan from sponsors repayable on demand. In HYFY21, a sizeable quantum of directors’ loan was converted to equity. Resultantly, capitalization indicators have depicted considerable improvement. Going forward, growth in profitability and maintaining adequate leverage indicators is considered important from ratings perspective.
For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or the undersigned (Ext. 306) at 021-35311861-70 or email at info@vis.com.pk
Faryal Ahmad Faheem
Deputy CEO
Applicable Rating Criteria: Industrial Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf