Press Release
VIS Reaffirms Entity Ratings of CBM Plastics (Private) Limited
Karachi, October 06, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘BBB+/A-2’ (Triple B Plus/ A Two) to CBM Plastics (Private) Limited. 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’. Previous rating action was announced on November 13, 2019.
CBM Plastics (CBM) manufactures plastic containers (jerry cans & plastic drums) for packaging of lube oil, pesticides, food products and ethanol. The Company has a diverse product portfolio, with products ranging from 50 ml to 250 liter containers catering to a variety of customers in the lube oil, pesticides, ethanol and food sector.
Assigned ratings incorporate company’s dominant position in the sectors it caters its products. Business risk profile of the company is considered moderate as evident from high barriers to entry (due to capital intensive nature of the industry given sizeable space requirements and semi-automated process, along with low margins), relative stability in gross margins due to ability to pass on fluctuation in gross margins as per agreed pricing formula with large clients, long term business relationships with major clients and CBM’s importance to the client’s business operations. The Company is a major supplier of ‘lube oil’ containers for 3 oil marketing Companies, as a result of which, the Company’s top line depicts concentration risk. However, comfort is derived from long standing business relationships with the major clients as either the sole supplier or the major supplier (80-90%).
Assessment of financial risk profile incorporates stable profitability profile, and room for improvement in liquidity and capitalization indicators. While gross margins have historically remained stable, the same improved during FY20 owing to declining in raw material prices and a change in the product mix with higher sales emanating from the Ethanol segment where changes in raw material are not passed as per the pricing formula. However, increasing working capital requirements and higher interest rates were a drag on profitability in FY20. Going forward, lower interest rates and volumetric growth in sales are expected to be key profitability drivers. Liquidity profile is a function of Company’s extended working capital cycle and increasing advance tax receivables. Gearing and leverage indicators have increased on a timeline basis and are considered to be on the higher side. The ratings remain dependent on continuity of long term contracts with major clientele, strengthening of cash flows, and maintenance of leverage indicators within prudent levels.
For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) 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