Press Release

VIS Reaffirms Entity Ratings of JK Dairies (Private) Limited

Karachi, December 24, 2024: VIS Credit Rating Company Limited has reaffirmed the entity ratings of JK Dairies (Private) Limited (JKD) at ‘BBB+/A2’ (Triple B Plus /A Two). The long-term rating of ‘BBB+’ signifies adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short term rating of ‘A2’ denotes good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 22, 2023.

JKD commenced its dairy farming operations in 2007. The ratings assigned to JKD takes into account its affiliation with the JK Group, which has business interests in sugar, agriculture, power and mining. The company's product range encompasses Raw Milk, Whole Milk, Low-Fat Milk, Yogurt, Cream, Hay, and Forage. JKD runs a self-sustaining dairy farm primarily within a business-to-business model.

The demand for milk follows a seasonal pattern, with flush and lean periods occurring in the first and second halves of the year respectively. Despite this, the demand for milk shows low elasticity and remains relatively stable. Factors such as urbanization, an untapped market with significant growth prospects, favorable regulatory policies, and a rising middle class contribute to the increasing demand for packaged milk. Enforcing significant regulatory changes, such as implementing minimum pasteurization laws, could potentially address industry challenges more effectively. JKD's exposure to business risk is relatively limited, given its secure contractual agreement with Nestle.

The assessment of the financial risk profile reflects significant topline growth, driven primarily by higher volumes and increased average product prices. Despite this growth, gross margins were impacted by rising input costs. However, the rationalization of administrative expenses and profits from associates contributed to an improvement in net margins, effectively offsetting the impact of higher finance costs resulting from elevated policy rates throughout the year. Sustainability in bottom line and net margins is warranted from the ratings perspective.

Cash flow coverages improved due to higher operating profits, while liquidity ratios also improved gradually. Gearing and leverage remained at manageable levels. The management plans a significant capital expenditure to double production capacity, which will be financed through a combination of internally generated funds and long-term borrowings. Consequently, gearing is expected to rise albeit will remain in same range. Sustainability in cashflow and debt coverages is desirable in order to improve ratings moving forward.

For further information on this rating announcement, please contact at 021-35311861-64 or email at info@vis.com.pk





Applicable Rating Criteria: Industrial Corporates.
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale.
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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