Press Release

VIS Assigns Preliminary Rating to Proposed Short Term Sukuk of Matco Foods Limited (MFL)

Karachi, January 06, 2025: VIS Credit Rating Company Limited (VIS) has assigned a preliminary rating of ‘A1 (plim)’ (A one preliminary) to proposed Short-Term Sukuk issue of PKR 2,500 million (inclusive of a Green Shoe Option of up to PKR 1,000 million) of Matco Foods Limited (‘MFL’ or the ‘Company’). The short-term rating of ‘A1 (plim)’ indicates strong likelihood of timely repayment of short-term obligations with excellent liquidity factors. The preliminary rating will be finalized upon review of final legal documents. The entity ratings of the Company are ‘BBB+/A2’ (‘Triple B plus/ A Two’) with a ‘Stable’ outlook announced on January 06,2025.

Matco Foods Limited (MFL), established in April 1990 in Karachi as a private limited company, was listed on the Pakistan Stock Exchange in February 2018. The Company specializes in processing and exporting rice and related products, operating under the brand name "Falak." MFL's product portfolio primarily includes basmati rice, rice glucose, rice protein, rice maltodextrin, corn starch, Himalayan pink salt, and a variety of gourmet salts, spices, dessert mixes, and other specialty items. The Company manages five rice processing and milling plants equipped with paddy drying, storage, and husking facilities, located in Sadhoke (Punjab) and Karachi (Sindh). Additionally, its corn starch production plant is based in Faisalabad, Punjab.

The Company is planning to issue a short-term sukuk of PKR 2,500 million (inclusive of a Green Shoe Option of up to PKR 1,000 million) for a tenor of six (06) months. The purpose of the sukuk is to support working capital requirements. The profit rate will be KIBOR + (Spread to be decided), with both principal and profit payments due at maturity through a bullet payment mechanism. The Sukuk will be secured, against GoP Ijarah or similar liquid security securing 30% of the issue size on upfront basis and additional 5% to be build up each month during the last quarter, together with availability of adequate banking lines.

In FY24, the Company recorded a notable improvement in topline performance, fueled by favorable market conditions, increased sales volumes, and price adjustments. Export sales contributed 59% of total sales, with local sales making up the remaining 41%. The rice category was the primary revenue driver, representing 68% of net sales, followed by the corn starch division at 18%, rice glucose at 12%, and Falak Spices at 3%. Despite robust revenue growth, profit margins were constrained due to elevated raw material costs and higher financial charges, resulting in a negative bottom line. However, margins are projected to recover, driven by interest rate cuts and diversification into additional product lines, including the corn starch and rice glucose divisions. The liquidity and capitalization profile faced challenges arising from elevated gearing and leverage ratios, subdued debt servicing capacity due to high financial charges, and significant cash outflows from consecutive years of capital expenditures. However, with no major additional capex in the pipeline and anticipated improvement in margins coupled with strong projected volume growth, financial metrics are expected to improve. Going forward, ratings will remain underpinned on sustained sponsor support and a recovery in financial metrics.

For further information on this rating announcement, please contact the undersigned at 042-35723411-12 or email at info@vis.com.pk

Applicable Rating Criteria:
VIS Entity Rating Criteria: Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Rating the Issue
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023.pdf
VIS Rating Scale
https://docs.vis.com.pk/docs/ratingscale.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2025 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .