Press Release

VIS Reaffirms Entity Ratings of Al-Ghazi Tractors Limited

Karachi, March 16, 2021: VIS Credit Rating Company Ltd. (VIS) has reaffirmed entity ratings of Al-Ghazi Tractors Limited (AGTL) at ‘A/A-1’ (Single A/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 December 31, 2019.

The assigned ratings incorporate sound sponsor profile of AGTL with 93% of the company’s ownership vested with two foreign companies (Al-Futtaim Group and CNHI) which have healthy financial profile and diversified market presence. The ratings also 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. Ratings also take into sound corporate governance framework of the company.

Ratings are underpinned by moderate business risk profile as depicted by significant potential in tractor sales growth given low penetration (number of tractors per acre of land) and mechanization (horsepower per hectare) rate as compared to regional peers, and competitive advantage vis-à-vis imports due to low prices of tractors & duty protection. However, demand for tractors has depicted variation over the last few years and is largely dependent on farmer’s economic health, crop production which is further dependent on weather conditions, availability of water (water scarcity in the country is a key risk), and assistance from GoP in the form of subsidies. Recent efforts by the government to increase crop production bode well from the demand perspective of tractors.

Overall economic slowdown, currency devaluation, locust attacks and supply chain disruptions due to COVID-19 resulted in weakening profitability profile of the company in 9M’20. However, with recovery in overall macroeconomic indicators post COVID-19 lockdown, profitability profile of the company has also depicted improvement on quarterly basis. Going forward, profitability of the company will remain a function of recovery in overall economic and agricultural growth. Liquidity profile of the company is considered sound given healthy cash flows in relation to outstanding obligations, limited trade debts as majority of the sales are on cash and healthy debt servicing ability. Capitalization indicators have depicted improvement in 9M’20 on account of decrease in short term borrowings and increase in equity base due to profit retention.

For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or the undersigned (Ext: 306) at 021-35311861-66 or email at info@vis.com.pk.



Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .