Press Release

VIS Credit Rating Company Revises Entity Ratings of Universal Leather (Pvt.) Ltd; Outlook changed from ‘Negative’ to ‘Stable’.

Karachi, May 09, 2019: VIS Credit Rating Company Limited has revised the entity ratings of Universal Leather (Pvt.) Limited (ULPL) from ‘BBB/A-3’ (Triple B/A-Three) to ‘BBB-/A-3’ (Triple B Minus/A-Three). Long Term Rating of ‘BBB-’ reflects adequate credit quality, reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short Term Rating of ‘A-3’ denotes satisfactory liquidity and other protection factors that qualify entities/issues as to investment grade. Risk factors are larger and subject to more variation; however, timely payment is expected. Outlook on the medium to long term rating has been revised from ‘Negative’ to ‘Stable’. The previous rating action for ULPL was announced on October 16, 2017.

Revision in rating incorporates erosion in risk absorption capacity on a timeline basis and weak liquidity profile given low cash flow generation. Ratings also incorporate sizeable regional competition resulting in limited pricing power and weak demand for ULPL’s products. Revision in rating outlook to ‘Stable’ reflects some improvement in financial profile in the ongoing year through focused cost reduction, improved margins (function of rupee depreciation), reduction in outstanding borrowings and stock carried on balance sheet. Ratings remain dependent on further improvement in financial profile through achieving projected increase in sales volumes.

Topline of the company increased during FY18 on account of higher average selling prices. Sales revenue largely comprises exports sales with higher geographic concentration noted in European market. While client concentration in sales is high, the same is mitigated through long term association with most large clients. Management has made concerted efforts to tap new markets in order to enhance sales volumes. This along with higher average rate for finished cow leather is expected to result in increase in sales revenue for FY19 vis-à-vis FY18.

The assigned ratings factor in reduction in quantum of operating losses during FY18 with the Company achieving operating profitability in the ongoing year on the back of significant improvement in margins. However, liquidity profile remains weak on the back of low quantum of cash flow generated from operations. Comfort is drawn from sufficient coverage of short term borrowings through stock in trade and trade debts. The ratings of ULPL are supported by the track record of sponsors having business cycle experience in leather industry.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 35311861-70 (10 lines) or fax to 35311873.

Javed Callea

Applicable 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 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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited