Press Release

VIS Upgrades Short-Term Entity Ratings of Shakarganj Food Products Limited

Karachi, March 02, 2023: VIS Credit Rating Company Limited (VIS) has upgraded the short-term entity rating of Shakarganj Food Products Limited (SFPL) to A-2 (A-Two) from A-3 (A-Three) while maintaining the long-term entity rating at ‘BBB+’ (Triple B Plus) with a change in outlook from ‘Stable’ to ‘Positive’. VIS has also maintained the instrument rating at ‘BBB+’ (Triple B Plus). The medium to long term rating of ‘BBB+’ signifies adequate credit quality, protection factors are reasonable and sufficient. Risk factors are considered variable if change occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. The previous rating was announced on January 04, 2022.
The ratings assigned to SFPL take into account strong sponsor profile, comprising renowned business concerns. The ratings incorporate moderate business risk environment underpinned by in-elastic demand of milk coupled with positive demand prospects of dairy products in line with population growth & higher per capita consumption. Moreover, the ratings reflect largely sustained market share despite high competition in value-added dairy and challenging operating environment of the organized segment. However, high market competition prevails in the documented dairy segment owing to presence of two strong market players, constituting around 90% market share. Moreover, the industry margins remain sensitive to exchange rate risk and price risk pertaining to imported skimmed milk powder and edible oils.
Assessment of financial risk profile factors in maintained topline and improvement in gross margin despite economic slowdown and pressure on consumers disposable income; the gross margin was recorded higher in line with increase in retail prices of the entire product portfolio. However, SFPL’s pre-tax margins dipped during the outgoing year on account of significant promotional expenses incurred to maintain market share coupled with increased financial expense borne by the company. Incurrence of high promotional expense remains a function of the Company operating in fast moving consumer goods sector. Further, the ratings take into account low cash conversion cycle and healthy short-term borrowing coverage recorded at over 2x. Moreover, the current ratio continues to remain low on account of policy of using payables as a zero-cost financing source. On the other hand, in line with high benchmark rates pressure on debt-service coverage is expect to prevail over the medium term. Owing to decline in overall debt utilization, gearing and leverage improved during the rating review period. Given no new debt drawdown is expected as all capex plans have been shelved, the gearing indicators are expected to improve during the rating horizon. Going forward, the ratings are dependent on consolidation of current market share, upward trajectory of revenue, mitigation of margin volatility, and improvement of debt.
For further information on this rating announcement, please contact Ms. Maham Qasim at 042-35723411-13 (Ext. 8010) or the undersigned (Ext. 207) at 021-35311861-64 or email at

Sara Ahmed

Applicable rating criterion: Corporates (August 2021)

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