Press Release

VIS upgrades Entity Ratings of Novatex Limited
 

Karachi, July 10, 2020: VIS Credit Rating Company Limited (VIS) has upgraded entity ratings of Novatex Limited (Novatex) from ‘AA-/A-1’ (Double A Minus/A-One) to ‘AA/A-1+’ (Double A/A-One Plus). Long Term Rating of AA reflects high credit quality, and strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions. Short Term Rating of A-1+ indicates high certainty of timely payment; short term liquidity, including internal operating factors and/or access to alternative source of funds, is outstanding and safety is just below risk free Government of Pakistan’s short term obligations. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 5, 2018.

Novatex is a part of G&T group of companies; the group has more than six decades of existence in diverse sectors including textile, plastic resin and power generation. Novatex operates in three business segments namely PET Resin, PET Preforms and BOPET Films. Moreover, Novatex (through a wholly owned subsidiary Nova Powergen Limited) has also pursued diversification by venturing in the power segment through investment in Thalnova Power Thar (Private) Limited (TNPTL), an under implementation project.

The assigned ratings reflect low business risk profile, healthy financial risk profile and adequate corporate governance framework given the private shareholding structure. Business risk is considered low as the company mostly caters to pharmaceutical and consumer packaged goods industries having stable demand pattern. Business risk profile of the company is further supported by changing preference of consumers towards packaged goods, vertical integration vis-à-vis competition, sizeable barriers to entry, diversified operations, relatively limited risk of currency devaluation and strategic long-term supply contracts with major customers. Key risk factors include risk of inventory loss and volatility in PET resin prices resulting from temporary supply and demand imbalances. However, business risk profile draws support from favorable medium term demand dynamics of key export markets and strong pricing power in the local market. The assigned ratings also incorporate strong ability to pass through costs increases to customers avoiding material impact on operating margins.

Assessment of financial profile of the company indicates robust profitability growth on timeline basis, healthy liquidity and strong capitalization indicators. Sizeable growth has been witnessed in overall topline of the company in FY19 on account of increase in revenues of each segment. Growth in topline coupled with one time exchange gain has translated to improvement in profitability. Liquidity profile is supported by sizeable cash flows and strong debt servicing ability. Moreover, lower projected outflow for capital expenditure in relation to internally generated cash flows over the rating horizon would result in healthy cash accumulation over time. Despite sizeable capital expenditure in recent past and increase in short term borrowings, leverage indicators of the company continue to remain on the lower side due to accretion to equity base over time. Leverage ratios are expected to remain at similar levels going forward. Given the sizeable exports, access to low cost funding is also a competitive advantage. Ratings derive support from company’s conservative financial policy of primarily undertaking future capital investments from internal sources. Improvements in governance framework and maintenance of robust financial indicators would remain important rating drivers.

For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or the undersigned (Ext: 306) at (021) 35311861-66 or email at info@vis.com.pk.


Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Industrial Corporates (May 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf

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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 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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited