Press Release

VIS Assigns Initial Ratings to Dairyland (Private) Limited

Karachi, October 15, 2019: VIS Credit Rating Company Limited (VIS) has assigned the initial entity ratings to Dairyland (Private) Limited (DPL) at ‘A-/A-2’ (Single A Minus/A - Two). The long-term rating of ‘A-’ signifies good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. Short term rating of ‘A-2’ depicts good certainty of timely payment. Liquidity factors and company fundamentals are sound with good access to capital markets. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.

DPL is engaged in production and sales of dairy products, especially processed milk. The company is a part of Akhtar Group of Companies with majority shareholding vested with Akhtar Textile (Pvt.) Limited. The company has developed an end-to-end value chain ranging from its own farm containing livestock for milk production to the final packaged products for the end-consumer. DPL deals under the brand name of ‘Dayfresh’ with a product portfolio encompassing Homogenized & Pasteurized milk, UHT Milk, Flavored Milk, Tea Whitener, Yogurt & Raita.

The assigned ratings of the company are underpinned by interest free loan injected by the sponsors, out of which Rs. 3.0b is committed to be retained in the company over the next three years. This loan is also convertible into equity at the discretion of the management. Ratings also incorporate low leverage indicators, improving profitability profile and increasing market penetration of the company on timeline basis. Governance framework depicts room for further improvement.

Business risk is characterized by significant competition in the packaged milk industry, which comprises only one-tenth of the overall milk consumption in Pakistan. Loose milk constitutes 90% of the total milk consumption in the country. Transition of consumers from loose milk to packaged milk continues to remain a challenge but at the same time untapped loose milk market represents significant growth opportunity for the packaged milk industry players. Business risk profile of DPL is supported by diversification into other dairy variants among which flavored milk has gained significant traction over the past few years.

The company is at a relatively nascent stage of operations in comparison to peers as indicated by its low market share. Topline of DPL has depicted healthy growth, on timeline basis, on account of both price and volumetric increase. Addition of new products in product portfolio has also aided increase in topline of the company. Growth in topline has translated to higher bottom-line of the company albeit net margins have exhibited a declining trend during the last three years due to higher expenses incurred to build brand reputation. Going forward, growth in market share, topline and profitability profile in line with projections is considered important from ratings perspective.

Leverage indicators have remained manageable due to support from sponsor in the form of sizeable interest free loan. Ratings remain dependent on maintenance of leverage indicators within manageable levels and presence of sponsor loan in the company. With growth in profitability, liquidity profile has witnessed improvement on timeline basis. Cash flows are considered adequate to serve outstanding obligations.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Narendar Shankar Lal (Ext: 203) or 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 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