Karachi, September 25, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Associated Technologies (Pvt.) Limited (ATL) at ‘A-/A-2’ (Single A Minus/A-Two) with ‘Stable’ outlook. The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ signifies good certainty of timely payment with sound liquidity and company fundamentals. Access to capital markets is good and risk factors are low. Previous rating action was announced on June 03, 2022.
The assigned ratings take into consideration the completion of the spin-off of ATL’s site services segment to a wholly-owned subsidiary, namely, Tower Power (Pvt.) Ltd. (TPL), during Sept’22. The Company’s tower portfolio along with the associated assets and liabilities were transferred to TPL, barring long-term loans which are expected to be shifted by 1HFY24 due to banking procedural delays. TPL business envisages provision of Build-to-Site (B2S) cellular tower services on a sharing-basis that generate rental income from Cellular Mobile Operators (CMOs). Post this change, ATL is now principally engaged in the manufacture and fabrication of steel structures for DISCOs and subsidiary company and is also involved in other turn-key construction projects. Overall business risk was elevated during the rating review period due to deterioration of macroeconomic indicators with import restrictions, policy rate hikes and high inflation levels resulting in supply constraints and drop in demand. The ratings also factor in enhanced client concentration risk as majority of production was geared towards TPL during 9MFY23. However, comfort is drawn from a positive long-term demand outlook given backlog in projects from public sector DISCOs and expected growth in the TowerCo industry owing to increase in data usage, localization of smartphone manufacturing and other government-level policy initiatives.
The financial risk assessment takes into account uptick in revenue on an annualized basis during 9MFY23, generated mainly from construction of new towers for TPL. Gross margins witnessed a decline vis-à-vis FY22 due to the transfer of the high-margin site services segment whereas net margin grew sizably due to re-measurement gain on the sale of tower portfolio. Excluding this gain, the adjusted net margin for 9MFY23 was markedly lower than FY22 levels in conjunction with inflationary pressure on operating expenses and increased financing charges on the back of higher policy rates. Consequently, cash flow coverages depicted a decline in line with lower internal capital generation but remained within the parameters for the assigned ratings. Overall liquidity position is supported by extended credit terms with suppliers and advance payments from customers which contributed towards a negative cash conversion cycle. Capitalization profile of the Company remained conservative with low gearing and leverage levels.
Revenue growth over the rating horizon is contingent on tower addition plans of TPL as well as new business from other players. Expansion of the client base is important from a rating’s perspective in order to mitigate the client concentration risk. Going forward, the ratings take into account strengthening of capitalization and net margin levels with the transfer of a major portion of long-term loan portfolio to TPL in the ongoing year.
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
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