Press Release

VIS Reaffirms Entity Ratings to Al-Ghazi Tractors Limited

Karachi, December 31, 2019: VIS Credit Rating Company Ltd. (VIS) has reaffirmed entity ratings of ‘A/A-1’ (Single A/A-One) to Al-Ghazi Tractors Limited (AGTL). Long Term Rating of ‘A’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A1’ signifies high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 24, 2018.

The assigned ratings incorporate AGTL’s strong market position in the local tractor industry, diversified product portfolio, wide spread dealer network and industrial collaboration agreement with CNHI Industrial Italia S.p.A (CNHI), one of the leading tractor manufacturers in the world, to assemble and sell ‘NEW HOLLAND’ CNHI tractors in Pakistan. Ratings also reflect adequate business and financial risk profile and sound corporate governance infrastructure. Ratings are constrained by elevated leverage indicators which have witnessed an improvement on a timeline basis. However, ratings draw comfort from company’s strong shareholding pattern with 93% of the company’s ownership vested with two foreign companies (Al-Futtaim Group and CNHI) who enjoy healthy financial profile and diversified market presence.

Ratings are underpinned by moderate business risk manifested by significant potential in tractor sales growth given low penetration (number of tractors per acre of land) and mechanization (horsepower per hectare) rate as compared to regional peers, and competitive advantage vis-à-vis imports due to low prices of tractors & duty protection. However, demand for tractors has depicted variation over the last few years and is largely dependent on farmer’s economic health, crop production which is further dependent on weather conditions, availability of water (water scarcity in the country is a key risk), and assistance from GoP in the form of subsidies.

Assessment of financial risk profile incorporates weakening in profitability indicators, strong liquidity profile, and elevated leverage indicators which have witnessed an improvement on a timeline basis. Profitability of the company witnessed weakening on the back of macroeconomic slowdown causing subdued demand, sizeable currency devaluation, high inflation & rising interest rates, and additional sales tax & custom duty. Gross margins of the company declined on a timeline basis however they compare favorably to peers on account of effective cost management and efficient operations. Liquidity profile of the company is considered strong given healthy cash flows in relation to outstanding obligations, limited trade debts as majority of the sales are on cash and healthy debt servicing ability. Receipt of tax refunds due from the GoP further bolstered liquidity profile.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext: 201) at 021-35311861-66 or email at

Javed Callea

Applicable Rating Criteria: Corporates (April 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