Press Release

JCR-VIS Assigns Initial Entity Ratings to Muller & Phipps Pakistan Private Limited

Karachi, December 31, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A+/A-1’ (Single A plus /A-One) to Muller & Phipps Pakistan Private Limited (M&P). The long term rating of A+ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is stable.

The assigned ratings incorporate M&P’s leading market position in the distribution industry. Within national level pharmaceutical distributors, M&P enjoys a market share of around 45%. Market share in overall pharmaceutical revenues is estimated at around 15%. M&P also enjoys national distribution arrangement with leading principals in other segments of business. M&P’s operations are diversified into a range of segments including pharmaceuticals, telecommunications, health care and consumer. Besides distribution, M&P also has investments in companies that complement and support its operations. Overall corporate governance infrastructure is considered sound and is supported by a well-designed organizational structure, adequate IT platform and comprehensive policy & procedural framework.

The company’s extensive outreach through its widespread and growing network of locations comprising of central warehouses, depots and service centers and vast coverage of retail customers touching 32,400 pharmacies and 50,000 outlets across Pakistan is a key rating driver. With its structure and available resources, the company has sufficient capacity to serve a wide outreach as evident from sizeable proportion of retail sales in overall sales; strength of distribution network is among the rating drivers.

Business risk profile derives support from diversified operations and presence in high growth segments. Around three-fourth of the revenues emanate from segments that have a long history of steady demand growth through industry and economic cycles. M&P’s exposure to top-tier clients who have had an established track record over the years of outperforming peers in terms of revenue growth bodes well for future sales. While M&P has a sizeable principle base of over 75 clients, customer concentration in sales is on the higher side. The risk is partly mitigated with most large clients having a lengthy association with the Company and high switch over cost for clients. Ratings also factor in fragmented and competitive nature of the distribution industry resulting in low margins and pricing power for industry players.

Assessment of financial risk profile incorporate historical growth in sales with healthy sales growth outlook, going forward. Growth in topline is projected to offset higher finance cost and increase in administrative expenses. Liquidity profile is supported by adequate cash flow from operations which are sufficient to cover repayments, capital expenditure and dividend payout. However, working capital cycle has room for improvement. Equity base has increased on a timeline basis due to retained profits. Margins which are a function of business dynamics would continue to be monitored, going forward, to maintain leverage and capitalization indicators at prudent levels.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Jamal Abbas Zaidi

Applicable Rating Criteria: Industrial Corporates (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 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