Press Release

JCR-VIS assigns initial ratings to Gujranwala Food Industries (Pvt.) Limited

Karachi, December 10, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned an initial entity rating of ‘BBB-/A-3’ (Triple B-Minus/A-Three) to Gujranwala Food Industries (Pvt.) Limited (GFIL). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality with reasonable protection factors. Moreover, the risk factors may vary with possible changes in economy. The short-term rating of ‘A-3’ denotes timely payment of obligations coupled with satisfactory company fundamental and liquidity factors. Outlook on the assigned ratings is ‘Stable’.

The ratings assigned to GFIL take into account its presence in a largely cash based fast moving consumer goods industry whereby economic downturn and inflationary pressure has limited impact on demand patterns. The ratings are aligned with GFIL being a mid-tier player in the organized sector of the confectionery industry with a modest market share. The ratings also incorporate low gearing and adequate debt service coverage of the company. However, the ratings are constrained by the company’s limited scale of operations, minimal growth in revenues on a timeline basis and high operating expenses leaving thin net margins, putting a drag on profitability and liquidity indicators.

The company recorded a compounded annual growth rate of 8.3% in revenues over the last three years; with range bound prices, the growth was largely a function of volumetric increase. The company sales mix remained dominated by local sales with export revenues, though increased, represented one-third of the total sales during FY18. The company operates on stable gross margins; however, the same does not translate into the bottom line owing to relatively high operating expenses emanating from the competitive nature of their product suite. Liquidity, in terms of cash flows, witnessed some volatility in recent years.

The capital structure of the company remains conservative owing to minimal reliance on borrowings. The equity base has remained modest on account of minimal profit generation. GFIL primarily uses export refinance facility to meet its short-term working capital requirements; meanwhile overdraft facility is also utilized on a need basis. Given increase in trade payables and advances received from customers, debt leverage is relatively high. The ratings are dependent on sustainable margins, rationalization of operating expenses and low gearing.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Javed Callea

Applicable rating criterion: Industrial Corporate (May, 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited