VIS Maintains Stable Ratings for Muhammad Shafi Tanneries Amid Economic Challenges

Karachi, VIS Credit Rating Company Limited (VIS) has reaffirmed its credit ratings for Muhammad Shafi Tanneries (Private) Limited (MSTL), holding the entity’s medium to long-term rating at ‘BBB+’ and its short-term rating at ‘A-2’. The ratings indicate MSTL’s adequate credit quality, with reasonable and sufficient protection factors, alongside a stable outlook. This decision, announced on March 5, 2024, reflects the company’s robust financial and liquidity position, despite the challenging economic environment. The previous rating action was publicized on May 09, 2023.

According to VIS Credit Rating Company Limited, the reaffirmation of MSTL’s ratings underscores the company’s strong fundamentals, characterized by sound liquidity factors and good access to capital markets, with minimal risk factors impacting its operations. Muhammad Shafi Tanneries, a family-owned business part of the Shafi Group, operates in the manufacturing and exporting of finished leather and has a diverse presence in the textile, food, and footwear sectors as well.

The ratings take into account the medium business risk profile of the leather sector, which benefits from its export-oriented nature. This orientation helps shield the company from significant impacts of local economic challenges such as currency depreciation and inflation, thanks to its high reliance on locally sourced raw materials. Nonetheless, the sector’s sensitivity to cyclicality in international markets is a noted concern.

Further, the assigned ratings reflect on MSTL’s financial risk profile, highlighting the company’s growth in revenue driven by increased exports and local sales. This growth, coupled with improved gross margins facilitated by the net benefit from currency depreciation, has been a key factor in the ratings decision. However, rising finance costs have placed pressure on net margins. Despite these challenges, MSTL has maintained a conservative capitalization profile with minimal debt and has successfully managed to recover its debt servicing ability to levels aligned with the assigned ratings.

For additional details regarding the ratings announcement, stakeholders are encouraged to contact Saeb Muhammad Jafri or the undersigned at VIS Credit Rating Company Limited for further clarifications.

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