Press Release

VIS Reaffirms Entity Ratings of Servo Motor Oil (Private) Limited

Karachi, December 19, 2024: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Servo Motor Oil (Private) Limited (“SMOPL” or “the Company”) at ‘BBB/A2’ (Triple B/A Two). Medium to long term rating of 'BBB' indicates Adequate credit quality; Protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short-term rating of 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remains ‘Stable’. Previous ratings action was announced on November 13, 2023.

SMOPL, a part of the Chicago Group (CG) of Companies, was incorporated in Pakistan on June 05, 2008, as a private limited company with its registered office and manufacturing plant located in Multan, Pakistan. The Company is principally involved in manufacturing and sales of Blended Lubricating Oil and Greases catering to the tractor and motorcycle segments of the automobile industry. The Company operates through a retail customer model supported by its own network of 52 warehouses across Pakistan, rather than utilizing a traditional distribution network, with the objective of optimizing margins.

Assigned ratings take into account the business risk profile of the lubricant sector in Pakistan, which is assessed as medium. This assessment reflects stable demand drivers across automotive and industrial applications, countered by challenges related to economic fluctuations, raw material costs, currency volatility, and regulatory factors. Demand for lubricants is influenced by the performance of the automotive and industrial sectors, with economic uncertainties and inflationary pressures posing risks to consumption patterns. The market dynamics are shaped by competitive pricing, innovation requirements, and reputational risks arising from counterfeit products. Heavy reliance on imported base oils and additives adds vulnerability to exchange rate fluctuations and global supply chain disruptions.

Assigned ratings also take into account the financial risk profile of the Company. Revenue growth in FY24 was driven by higher selling prices, though the volumetric sales declined due to lower production amidst uncertain economic conditions. Gross margins remained stable; however, net margins were impacted by higher finance costs. Capitalization metrics reflected higher gearing and leverage, largely due to increased short-term borrowings to manage working capital needs, although a conservative profile was maintained. Liquidity indicators saw a decline, owing to higher debt utilization, though coverage ratios remained adequate for the assigned ratings. Debt service coverage improved due to increase in funds from operations and reduction in long term debt servicing.

Going forward, ratings will remain sensitive to the Company's ability to improve margins, and maintain liquidity, coverage and capitalization metrics commensurate with the assigned ratings.

For further information on this ratings announcement, please contact on 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

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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .