Press Release

VIS Reaffirms Ratings of Shakarganj Food Products Limited

Karachi, July 18, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Shakarganj Food Products Limited (SFPL) at ‘A-/A-2’ (Single A-Minus/A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Rating of SFPL secured Sukuk issue of Rs. 725m has also been finalized and reaffirmed at ‘A’ (Single A). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on March 20, 2018.

The assigned ratings take into account strong sponsor profile of the company, comprising renowned business concerns including Sharkarganj Limited, Bank-Islami Pakistan Limited and Crescent Steel and Allied Products Limited. The business risk profile of the company is considered moderate on account of increasing intensity of competition in value-added dairy and challenging operating environment of the organized dairy segment, leading to range bound margins. Moreover, the industry margins remain sensitive to exchange rate risk and regulatory changes in taxes and duties on import of skimmed milk powder and edible oils. The ratings draw comfort from sustained business growth, adequate liquidity profile and debt coverages. The company’s capacity expansion project is in the final phase, and commissioning is expected in August 2019, which will further augment the company’s profitability.

SFPL registered a healthy growth in net sales mainly on account of notable volumetric increase in liquid tea whitener brand ‘Qudrat’ and UHT milk brands ‘Good Milk’ during FY18. The focus on Juices & Nectar division has also helped the company in its growth trajectory. The company also depicted improvement in gross margin on the back of price increase and economies of scale. Going forward, the margins may come under pressure given the steep rupee devaluation and increase in overall production cost. In line with the improved profitability, SFPL generated higher funds from operations (FFO) during FY18.

The leverage indicators were recorded higher, though still manageable, during the period under review on account of higher utilization of debt financing to support the expansion of milk processing and packaging units. The ratings will remain dependent on maintenance of market share in tea whitener and UHT milk segments, profit margins and debt leverage at prudent levels, and improvement in debt coverage, going forward.

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

VIS Entity Rating Criteria: Corporates (May 2019)

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