Press Release
VIS Reaffirms Entity Ratings of HKB Retail (SMC Pvt.) Limited
Karachi, February 18, 2025: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of HKB Retail (SMC Pvt.) Limited (HKB) at ‘A-/A3’ (Single A Minus/A Three). The medium-to-long-term rating of ‘A-’ indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A3’ denotes fair likelihood of timely repayment of short-term debt obligations with satisfactory liquidity factors. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on January 11, 2024.
HKB operates in a highly competitive mid-range, retail clothing sector, with a focus on both physical retail and e-commerce channels. The Company manages two main brands: ‘Beechtree’, which offers women’s apparel and ‘Pepperland’, rebranded as ‘Beechtree Kids’, which caters to children’s clothing. Additionally, HKB has an online presence under the brand ‘Morbagh’, which has now been merged with ‘Beechtree’, to further expand its digital reach.
Pakistan’s retail sector remains under pressure due to high inflation, stagnant wages and weak discretionary spending. While inflation has eased, the impact of prolonged economic hardship continues to weigh on consumer demand. Interest rate cuts have improved financial conditions, but unemployment and sluggish wage growth persist. The sector saw only a modest recovery in FY24 after a sharp contraction in FY23. Retailers are adapting with discounts and installment options, while new brands enter the market, driven by a growing middle class and digital adoption. However, forecasts suggest potential contraction in the apparel segment, signaling ongoing challenges.
The assigned ratings reflect the improvement in margins, driven by a shift in the product mix towards the higher margin pret segment. However, liquidity metrics remain under pressure due to extended working capital cycle coupled with support extended to related parties. While capitalization profile depicts improvement over time as a result of profit retention and sponsor loans, leverage remains on the higher side. Going forward, improving margins and profitability profile in the face of demand challenges together with reduction in leverage will remain important for ratings.
For further information on this rating announcement, please contact at (021) 35311861-4 or email at info@vis.com.pk
Applicable Rating Criteria: Corporate
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf