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Karachi, August 10, 2023 (PPI-OT): VIS Credit Rating Company Ltd. (VIS) has reaffirmed entity ratings of Premier Sales (Private) Limited (‘PSPL’ or ‘the Company’) at ‘A/A-1’ (Single A /A-One). The long term rating of ‘A’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-1’ signifies high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on July 07, 2022.
Ratings incorporates PSPL’s market position, being a prominent player in the distribution business. The Company caters to a diversified category of clients from Pharmaceutical and FMCG sectors, with pharmaceutical being the most dominant segment. Ratings also take into account medium to low business risk of the business segments they operate in coupled with presence of long-term contracts with clients. Company continued to add new principals to its client base in FY22 while also expanding territories with existing ones.
Assessment of financial risk profile reflects an uptick in topline due to rising prices, however, volumes remained subdued. Amidst high inflationary environment, increasing fuel and utility costs posed challenges for the Company, consequently exerting pressure on margins. In addition, higher interest rates also contributed towards pressure on net profitability of the Company. Pricing revisions to incorporate these costs have been initiated, however, given the current macroeconomic situation; this may be challenging for the Company and may come around with a lag.
The business model of the Company entails maintaining larger inventories on account of principals to support business growth. As a result, the Company is compelled to obtain short-term borrowings in order to meet working capital requirements, which has resulted in significant increase in gearing and leverage indicators. Given the high interest rate environment, the inventory funding cost is causing a strain on profitability and consequently debt coverages, which may put pressure on ratings, going forward. The Company aims to improve its gearing and debt-servicing ratio through rationalizing its short-term borrowings by way of negotiating contracts with existing and new principals. Liquidity metrics remain sound, albeit declining. Improvement in capitalization indicators together with maintenance of sponsor support will remain important for ratings, going forward.
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
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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