Press Release

VIS Upgrades Entity Ratings of Al-Ghazi Tractors Limited

Karachi, June 02, 2022: VIS Credit Rating Company Ltd. (VIS) has upgraded the entity ratings of Al-Ghazi Tractors Limited (‘AGTL’ or ‘the Company’) from ‘A/A-1’ (Single A/A-One) to ‘A+/A-1’ (Single A Plus/A-One). Long Term Rating of ‘A+’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A1’ signifies high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on March 16, 2021.

The revision in rating takes into account improved cashflow coverage indicators given that debt has entirely been retired, strong business risk metrics and positive profitability outlook. With GDP growth recovery in 2021, the demand for tractors rebounded. Industry volumetric sales are expected to grow further, following a 7 year cycle wherein industry sales maxed in FY17/18 period. AGTL’s market share, which had depicted a decline in CY20 to 30.9% from 38.2% in CY19, improved to 32.7% in CY21 and stood at 45.6% in 4MFY22. As per management, the improvement in market share is attributable to management’s focus on enhancing the distributor network. Given the strong recovery in industry sales and AGTL market share, AGTL’s topline was up 72% YoY in CY21. Gross margin of the Company remained intact, while net margin depicted notable improvement on the back of better operational efficiency, increased other income and minimal finance cost.

The assigned ratings continue to factor in sound sponsor profile of AGTL, with 93% of the Company’s ownership being vested with 2 renowned international enterprises (Al-Futtaim Group (50%) and CNHI (43%)). The ratings reflect AGTL’s significant market share in the local tractor industry, diversified product portfolio, wide spread dealer network and industrial collaboration agreement with CNHI Industrial Italia S.p.A (CNHI), one of the leading tractor manufacturers in the world, to assemble and sell ‘NEW HOLLAND’ CNHI tractors in Pakistan. Going forward, AGTL plans to launch newer models in order to enhance its market share in the higher horsepower segment.

Liquidity profile of the Company is considered sound, given adequate cash flows and negligible trade debts (as majority of the sales are on advance payments). Current ratio of the Company also remained comfortable at 1.51x as at Dec’21, supporting the short term rating assessment of AGTL. AGTL’s balance sheet, which only comprised short term borrowings to fund working capital requirements, was debt free as of Dec’21. Accordingly, gearing receded to zero, while leverage was also considered moderate as of Dec’21. Going forward, capitalization indicators are projected to stay on the lower side. The assigned ratings remain dependent on maintenance of business and financial risk metrics and overall size of the equity base in line with peers.

For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA (Ext: 216) or the undersigned (Ext: 207) at 021-35311861-66 or email at .

Sara Ahmed

Applicable Rating Criteria: Industrial Corporates (August 2021)

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