Press Release

JCR-VIS Reaffirms Entity Ratings of Muhammad Shafi Tanneries (Private) Limited

Karachi, March 18, 2013: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings assigned to Muhammad Shafi Tanneries (Private) Limited (MST) at ‘BBB+/A-3’ (Triple B Plus/A-Three). Outlook on the assigned rating is ‘Stable’.

Having the third largest export volumes in the manufacturing sector, leather-based industry in Pakistan has valuable contribution to the overall economy. The industry may be faced with some pressure on account of slowdown in European markets, which are major export destinations, as well as domestic issues. In tandem with the industry trend, sales of MST in volumetric terms were also lower in FY12 (Jul’11-Jun’12) in relation to the prior year; nonetheless, with increasing price of finished leather in the global market coupled with depreciation of Pak Rupee against US Dollar, sales in value terms have increased. Volumetric sales have recouped in the ongoing year along with further increase in prices.

MST is part of the Shafi group of companies, a diversified business concern having presence in rice, textile, dairy and real estate sectors. MST is the group’s holding company with a substantial portion of its equity having been channeled into associates & subsidiaries. Given that most of these companies have been established in the past five years, these have yet to achieve desired profitability levels.

On a standalone basis, although gross profit of MST was higher in the outgoing financial year given higher margins, bottom line of the company has remained around prior year’s level due to higher financial charges and reduction in income from non-core business operations. A large portion of the company’s current assets comprises inventory. These have largely been financed through short term borrowings mobilized under State Bank of Pakistan’s export refinance scheme. Leverage indicators of the company have remained within prudent levels.

MST has mainly focused on leather used in manufacturing of feminine footwear, sourced from goat skin, given higher margins in the same; the main tannery of MST, situated in Karachi and having monthly production capacity of 2m Sqft of finished leather, is also mainly geared towards production of leather made from goat and sheep skin. The newly established production facility in Lahore has the capacity to produce around 0.8m Sqft of semi-finished leather, which is then moved to Karachi tannery for further processing. With drums installed in the Lahore factory being larger in size, it is also equipped to process the skin of bovine animals. Diversification in product line with the planned use of buffalo/cow hides, going forward, may help in achieving the desired growth in sales volumes.

For further information on this rating announcement, please contact the undersigned (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 604) at 35311861-70 (10 lines) or fax to 35311873.

Javed Callea

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-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. JCR-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. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-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 2013 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited