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Karachi, December 31, 2014 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the medium to long-term entity rating of Sitara Chemical Industries Limited (SCIL) at ‘A+’ (Single A Plus) and short-term entity rating at ‘A-1’ (A-One). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on March 7, 2013.
The Chlor-alkali industry is oligopolistic in nature, with three key players; SCIL has the largest market share in terms of sales at 41.8% in FY14. In the recent year, caustic soda prices have seen an increasing trend on average.
The same, however, could not have a positive impact on gross margins of the sector as unavailability of adequate gas has forced producers to shift to relatively expensive alternate electricity sources, which is a major input in the electrolyses process of producing caustic soda. Capacity utilization and sales volume have remained lower for all three players in FY14.
SCIL depicted growth in revenue primarily on the back of higher prices in caustic soda. However, there was some dip in profitability amidst declining gross margins during FY14. The downward trajectory continued in 1Q15 where margins have eroded notably. The management expects the declining trend in gross margins to be arrested as local prices of caustic soda are likely to exhibit stability, going forward.
The company is planning to incur capital expenditure to enhance fuel efficiency and production capacity. SCIL has opened LC’s for setting up 35MW coal fired power plant and expansion of calcium chloride plant by 30,000 MT.
The total cash outlay for the projects is expected to be above Rs. 3b. Given the borrowing plans, gearing and debt leverage may trend upwards; debt servicing coverage ratios are expected to remain within manageable limits.
The company is partially disposing off its investment properties. The cash proceeds are expected be received in installments over the next 5 years. The sale, apart from reducing the quantum of non earning assets on books, would also provide a source of liquidity in the long run.
For more information, contact:
Ms. Sobia Maqbool
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk