Lahore, December 31, 2019 (PPI-OT): Pak Suzuki Motor Company Limited (PSMC) is the only player from among the established auto OEM in Pakistan, that is predominantly owned by the foreign shareholder. Besides, there is high level of integration with the parent and associates. The ratings reflect strong industry positioning of PSMC in its respective niche. With a presence of up to four decades in the automotive industry, the company has established a formidable forte in the domestic market. PSMC witnessed sustainable growth in preceding years amid growing middle class with stable margins.
The industry is cyclical and prone to adverse macro-economic indicators. This is more true for the customer segment of PSMC. However, the automobile industry has witnessed a significant dip in volumes from January 2019. Ongoing economic slowdown has impacted the Company’s revenues and profitability in 9MCY19, resulting in net loss. This was primarily due to slower pace of adjusting the prices upward, hence the impact on volumes is relatively lower. The delta has been reduced now and will reflect positively in 2020. The Company has significant leveraging to fund its working capital needs, currently extended beyond normalcy.
Relatively higher finance cost and low cash flows have resulted in weak coverages. Debt metrics need to be upheld and benefits from the new initiatives to develop new models should lead to healthy topline and in turn healthy bottom-line. The ratings draw comfort from the diversity in business streams, integration of supply chain at group level and technical support from the sponsor in accordance with License agreement. A sizeable portion of debt is covered through assurance / credibility of Suzuki group, providing support to the assigned ratings. The overall
The ratings are dependent on the Company’s ability to improve its financial profile by reducing leveraging and rationalizing its working capital. The management is working on this front and timely materialization of these initiatives is critical. Additionally, maintaining margins and improving profitability from core operations is important. Any significant increase in debt and/or working capital will impact the ratings without any support.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Category: General Business News