Karachi, December 29, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Thal Limited (THAL) at ‘AA/A-1+’ (Double A /A-One Plus). The long-term rating of ‘AA’ signifies high credit quality and strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-1+’ signifies highest certainty of timely payment; short term liquidity, including internal operating factors and /or access to alternative sources of funds, is outstanding and safety is just below risk free Government of Pakistan’s short-term obligations. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 12, 2019.
The assigned ratings incorporate conservative financial policy of the company, robust financial profile with low levels of projected debt and low leverage indicators, improving profitability profile and healthy liquidity indicators. The ratings also reflect presence of strong sponsor at helm and implementation of sound corporate governance internal controls framework within the organization. Ratings remain dependent on maintaining robust financial profile through business cycles and low leveraged capital structure.
Business risk profile of the company draws support from the company’s established market position and track record in the auto parts industry along with technical collaborations with leading international players. Significant revenue diversification in jute, papersack and laminates businesses (classified under Building and Allied Materials (BAM) segment) alongside investments in real estate and energy sectors also strengthen business risk profile of the company.
Cyclicality in engineering sales due to slowdown in economic growth, frequent policy changes, and lower ability to pass on the increase in input costs to end consumers in jute, papersack and laminates businesses continue to remain key risk factors going forward. At present, all the core business segments remain well poised for growth in the medium term on account of improvement in macroeconomic conditions of the country and resurgence of demand in key supporting industries (automobile, cement, construction).
Profitability metrics of the company witnessed a downward trend in FY20 on account of various challenges such as suppression of demand in key industries (cement, automobiles) on account of COVID-19, rupee devaluation and inability to pass on the increase in input prices to end consumers (laminates business). However, improvement in profitability metrics across all business segments was observed in Q1’FY21 due to improving macroeconomic conditions, favourable demand prospects and cost efficiency initiatives undertaken by the management.
Going forward, volumetric growth and improving margins are projected to support earnings of the company over the ratings horizon while income from investments is also projected to contribute considerably to the bottom line. Ratings are dependent on achieving projected revenue growth and cash flows, maintaining prudent financial policies while further strengthening market position in key business segments. Materialization of dividend income from investments in the energy sector could act as a positive rating driver.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan