Karachi, December 28, 2015: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of MATCO Foods (Private) Limited (MFL) at ‘A-/A-2’ (Single A-Minus/ A-Two). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on December 29, 2014.
The assigned ratings to MFL incorporate the company’s position as the largest basmati rice exporter in the country having a market share of 6.5% (FY14: 7.2%) in total basmati exports. Ratings also reflect the company’s steady performance in the backdrop of a challenging operating environment given the oversupply situation and pressure on commodity prices.
Rice industry in Pakistan is fragmented with significant number of small growers and producers. Given the industry structure, market forces determine price levels. In quantity terms, rice exports stood higher at 3.73m tons (FY14: 3.36m tons); however in dollar terms rice exports were lower at $1.85b (FY14: $ 2.06b) due to decline in basmati rice exports where prices are significantly higher than non-basmati rice exports. Sluggish demand and decline in prices of rice has resulted in significant rise in unsold stock for industry players. Resultantly, area under cultivation and production for FY16 is projected to decline. Inventory planning and margin management along with focus on branding and marketing would be key driver for business stability and growth.
Top-line of the company exhibited decline in FY15. Export of basmati rice represents the major portion of sales with local sales comprising almost one-fifth of total sales. Given the enhanced focus on branding, sales of company’s branded product (Falak) now represent almost one-third of total sales. Concentration risk in revenues is high; the risk is partly mitigated by long standing relationship of the company with most top revenue contributing clients and MFL’s widespread geographical presence. Gross margins showcased improvement during FY15 with reduction in input cost along with booking orders at favorable rates. Going forward, management is focused on improving return on equity by enhancing asset turnover & venturing into higher margin rice categories, branded packaged food and value addition from by-products of rice.
With improved margins, fund flow from operations (FFO) was reported higher during FY15. FFO of the company remains adequate to meet long term debt obligations and fund routine capex while inventory balances are higher than the outstanding short-term debt. Capitalization levels have increased over time due to internal capital generation while leverage indicators have been maintained at prior year level. Level of stock in trade has witnessed an increasing trend. Given the orders in hand, management expects inventory levels to decline. Resultantly, utilization of short-term borrowing is also expected to be lower during FY16.
For further information on this rating announcement, please contact Mr. Mohammed Khalid Ali (Ext: 508) or the undersigned (Ext: 516) at 021-35311861-70 or fax to 021-35311873.
Jamal Abbas Zaidi
Applicable Rating Criteria: Industrial Corporate (Oct 2003)
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