Press Release

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

Karachi, May 20, 2014: JCR-VIS Credit Rating Company Limited has upgraded the entity ratings of Muhammad Shafi Tanneries (Private) Limited (MST) from ‘BBB+/A-3’ (Triple B Plus/A-Three) to ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned rating is ‘Stable’.

MST has posted continuous growth in sales over the last four years. Gross margins have also depicted a healthy trend. Despite significant rupee appreciation in 3QFY14, management anticipates gross margins to remain healthy in the on-going year on the back of product differentiation initiatives taken by the company’s research and product development team. Historically, the company has successfully passed on increase in raw material prices to customers. The company primarily caters to the lower and mid-tier market segment with around four-fifth of clients pertaining to the shoe-manufacturing segment. The company is trying to get recognized by more established brands by way of foreign certifications and greater investment in environment conscious treatment plants.

Debt profile of the company remains mostly short term. In line with improving profitability, internal cash generation has increased over time and provides full coverage against long-term debt while stock-in-trade is in excess of the short term borrowings. The company’s long inventory holding period entails financial cost. In this backdrop, generating healthy margins is considered essential to generate the desired bottom line results and maintain capitalization within prudent limits.

MST is part of the Shafi group of companies, having primary interest in the leather sector while also having established companies in the textile, dairy and real estate sectors. Over the last year, some of the strategic investments carried on MST’s books were off-loaded by way of specie dividend distributed to MST’s shareholders. Future drag on earnings from less profitable group companies has been eliminated as current strategic investments are in companies having profitable operations. The company also carries a portfolio of liquid investments, generating ancillary income.

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 2014 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