PACRA Assigns Initial Entity Ratings to Siddiqsons Tin Plate Limited

Lahore, June 28, 2019 (PPI-OT): The ratings reflect Siddiqsons Tin Plate’s established foothold in the tin plate industry as the first and sole local manufacturer of tin plate in Pakistan. Siddiqsons has a market share of ~31% in the local market. The demand for the Company’s products has shown growth in the recent past due to increased hygiene consciousness of the public at large and higher use of processed food. However, the company was unable to seize this opportunity due to inconsistent supply of its raw materials and steep competition from commercial importers, signifying business risk. Thus, the top line of the company has remained stagnant with low capacity utilization.

The margins have decreased significantly in FY18 due to increase in cost of raw materials owing to rupee devaluation. Although the gross margins returned to historic levels, the net margins remained depressed facet of increased finance costs. The Company plans to establish a Cold Rolled Coil steel manufacturing complex to streamline its raw materials supply and boost margins. This is expected to improve profitability once the project comes online.

The Company’s financial risk profile is considered adequate characterized by moderate leveraging and good coverages and stretched working capital. The Company conducted a right issue to partly finance the expansion project. The Company will increase borrowings to finance the project. However, the project will start production ~12 months prior to principle repayments for related loans. This will create cushion for repayment from ensuing cash flows. The ratings take comfort from the financial strength of the Siddiqsons group and strong support from the sponsors.

The ratings are dependent upon holding sustained operations and continuity of improved margins. Successful and timely execution of planned CRC project is key to uphold ratings. The maintenance of coverages during expansion phase will be critical for the ratings. Continuity of anti-dumping duty is considered critical for the sustainability of the business risk profile of the Company.

For more information, contact:
Analyst
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
Email: hammad.rashid@pacra.com
Web: www.pacra.com