Press Release

VIS Reaffirms Entity Ratings of Procon Engineering (Private) Limited

Karachi, August 27, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Procon Engineering Private Limited (PEPL) at ‘A/A-2’ (Single A/A-Two). Outlook on the assigned ratings is ‘Stable’. Outlook on the assigned ratings is ‘Stable’. 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-2’ signifies good certainty of timely payment; Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. The previous rating was announced on April 6, 2018.

The assigned ratings incorporate the business diversification of PEPL in vehicle seats, where it has a prominent market position, and significant revenue generation from sheet metal products. Current ratings also reflect the support received for operations and quality assurance through PEPL’s technical assistance program. Business risk profile is considered challenging in view of the weak macroeconomic indicators that may affect the demand for automobiles going forward; however, the management’s focus on product diversification is expected to support financial profile of the company. Moreover, secured margins through indexation of selling prices to input costs also provide cushion to the ratings.

Revenue base of the company registered healthy growth in FY18 and HY19 vis-à-vis the corresponding periods in the previous year. Nonetheless, client concentration remains on the higher side given the oligopolistic nature of industry. However, the client concentration risk is partly mitigated by long term relationships with these clients. Moreover, the management has established relationships with some new market entrants and is in negotiations with others, which is expected to reduce client wise concentration as well as support business volumes over the long term. Profitability of the company has depicted upward trend due to growth in business volumes, improved product mix and efficient procurement of raw materials.

Leverage indicators of the company have increased primarily on account of higher utilization of short term borrowings due to increasing working capital requirements due to currency devaluation. Long term debt partly primarily comprises foreign currency denominated loan, indicating significant currency risk on PEPL’s books. At current debt levels, debt servicing coverage remains comfortable. Going forward, no significant increase in borrowings is planned in view of the Capex requirements. Sustaining leverage indicators in line with projections is considered to be a key determinant of ratings.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Narendar Shankar Lal (Ext: 203) at 35311861-70 or fax to 35311872.

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 .

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