Press Release

VIS Reaffirms Ratings of Treet Corporation Limited

Karachi, December 31, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Treet Corporation Limited (TCL) at ‘A-/A-2’ (Single A Minus/A-Two) with ‘Rating Watch-Developing’ status. The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamentals and liquidity factors. The previous rating action was announced on October 6, 2020.

The ratings assigned to TCL incorporate strong sponsorship profile and diversified revenue stream of the company owing to presence in different product segments. During the outgoing year, operational performance of the company improved in line with higher revenue generation in blades and battery segments with notable improvement in gross margins mainly due to higher profitability in blades and lower negative contribution from battery segment. Curtailment of losses in the battery segment was possible on account of better fixed cost absorption and price rationalization. Localization of resources for battery segment, improved plant efficiency and better inventory management has also reflected positively on the gross margins. The company disposed non-core assets during FY21 and 1QFY21 that generated considerable cash flows to partially offset borrowings and capital gain which supported the bottomline. The company also recorded sizeable other income emanating from reversal of a revaluation deficit on a land and building, export rebate and gain realized on short-term investments. However, liquidity position remains weak with negative funds from operations (before working capital changes) amidst sizeable adjustments related to non-cash other income. The leverage indicators, albeit improved on the back of higher core equity and some decrease in borrowings, remained on a higher side.

The company is in process of executing demerger of battery segment into another company, which is expected to be concluded by 3QFY22; further capital injection in the battery company from an equity partner is expected to augment the equity base and help in lowering short-term borrowings. The management also plans to reprofile part of its short-term financing into long-term loans in order to improve its current ratio. The ratings also factor in ongoing capacity enhancement regarding hemodialysis concentrates and blades segment and frequent BMR to improve operational efficiencies. Steady demand of the company’s flagship product i.e., razors and blades in local and export markets and improvement in brand recognition of batteries in the local market bodes well for revenue growth amidst economic expansion. The management expects battery segment to turn profitable in the ongoing year due to BMR and economies of scale. Liquidity position is also projected to improve on the back of higher profitability from core operations. However, given considerable level of short-term borrowings on the balance sheet, increasing trend in markup rates may adversely impact profitability, going forward. The ratings will remain dependent on materialization of expected equity injection within stipulated timeframe to improve capitalization and liquidity indicators while achieving projected revenue growth and profitability.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz at 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at info@vis.com.pk


Faryal Ahmad Faheem
Deputy CEO


VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.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 .