Press Release

JCR-VIS Reaffirms Entity Ratings of Sitara Chemical Industries Limited

Karachi, December 31, 2014: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the medium to long-term entity rating of Sitara Chemical Industries Limited (SCIL) at ‘A+’ (Single A Plus) and short-term entity rating at ‘A-1’ (A-One). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on March 7, 2013.

The Chlor-alkali industry is oligopolistic in nature, with three key players; SCIL has the largest market share in terms of sales at 41.8% in FY14. In the recent year, caustic soda prices have seen an increasing trend on average. The same, however, could not have a positive impact on gross margins of the sector as unavailability of adequate gas has forced producers to shift to relatively expensive alternate electricity sources, which is a major input in the electrolyses process of producing caustic soda. Capacity utilization and sales volume have remained lower for all three players in FY14.

SCIL depicted growth in revenue primarily on the back of higher prices in caustic soda. However, there was some dip in profitability amidst declining gross margins during FY14. The downward trajectory continued in 1Q15 where margins have eroded notably. The management expects the declining trend in gross margins to be arrested as local prices of caustic soda are likely to exhibit stability, going forward.

The company is planning to incur capital expenditure to enhance fuel efficiency and production capacity. SCIL has opened LC’s for setting up 35MW coal fired power plant and expansion of calcium chloride plant by 30,000 MT. The total cash outlay for the projects is expected to be above Rs. 3b. Given the borrowing plans, gearing and debt leverage may trend upwards; debt servicing coverage ratios are expected to remain within manageable limits.

The company is partially disposing off its investment properties. The cash proceeds are expected be received in installments over the next 5 years. The sale, apart from reducing the quantum of non earning assets on books, would also provide a source of liquidity in the long run.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA at 021-35311681-70 or Mr. Maimoon Rasheed at 042-36610681-84.

Jamal Abbas Zaidi
Deputy CEO

Applicable Rating Criteria: Industrial Corporates (October, 2003)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-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. JCR-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. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-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 2014 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited