PACRA – MediaLine Pakistan

March 30, 2023

PACRA Maintains Entity Ratings of Sargodha Jute Mills Limited

Lahore, March 30, 2023 (PPI-OT): The ratings reflect Sargodha Jute Mills Limited’s (“the Company” or “SJML”) prominent business profile in the jute industry of Pakistan emanating from considerable market share and wide-ranging final product utility. The core strength of the Company lies in two segments (i) Usage of Jute bags for the storage of essential food items at a large scale and (ii) Predominately exports of Jute value-added products. Pakistan’s jute industry imports 100% of its raw jute from Bangladesh.

The prices of raw jute fluctuate in the international market and have been observing a downward sloping trend mainly on the back of demand squeeze in European markets as the global recession triggers. This price benefit is offset by the following factors (i)massive PKR devaluation over the year, (ii) a hike in the policy rate, (iii) a higher tax burden and (iv) consistent escalation in oil, gas and electricity prices have impacted the cost of production and exerted pressures on the margins.

However, the Company was able to pass on a major portion of these costs to its customers. The rating takes comfort as despite these obstructive macroeconomic indicators the Company expects to sustain its top-line growth due to the nature of its product. The SJML have faced import restriction at a moderate level as ~40.0% of local sales are attributed to government departments and their final product utility classify under SBP circular No. 20 essential items- Imports related to essential sectors.

The top line of the Company has observed a growth of 42% YoY basis mainly supplemented by 17% volumetric growth and remaining supply side inflation impact. The SJML export segment has shown an impressive growth of 53.3% YoY basis by exploring new export avenues and dispensing some hedge with respect to PKR devaluation. Going forward, the Company is focusing to induce further growth in its export segment. The ownership and the board structure are comprised of sponsoring family members.

All members possess extensive industry-specific exposure and expertise. The financial risk profile of the Company is considered adequate with comfortable coverages, cashflows and a slightly stretched working capital cycle.

Capital structure is leveraged, where borrowings are comprised of only short term to meet their working capital requirements. The Company’s topline performance is aligned with SJML management’s earlier shared financial projections which provides comfort to the rating sustainability. The ratings are dependent on sustainable profits and market share while retaining sufficient cashflows and coverages. However, adherence to maintaining its debt metrics at an adequate level is a prerequisite.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com

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March 30, 2023

PACRA Maintains Entity Ratings of Masood Fabrics Limited

Lahore, March 30, 2023 (PPI-OT): Masood Fabric Limited (‘Masood Fabric’ or ‘The Company’) is a public unlisted limited company. The Company is principally engaged in the manufacture of yarn and greige fabric, primarily catering to the home textile market. The Company maintains two separate units, Unit-I consists of 32,640 spindles and Unit-II consists of weaving operations with installed 244 air-jet looms. During FY22, the company’s top line displayed an enormous increase recorded at PKR 24.1bln (FY21: PKR 14.7bln).

The sales mix tilted towards the export market attributable to a higher demand pattern for textile products during FY22. The exports comprise the sale of fabric (51.5%) and yarn (48.5%). The margins and coverages demonstrated an improvement on account of operational efficiencies. The company’s financial risk profile has reflected a comfortable position.

During 1HFY23, the company’s bottom line stood at PKR 619mln (1HFY22: PKR 1.2bln) on the back of higher expenses and finance costs which is in line with the industry trend. The company’s financial risk profile witnessed a slight attrition primarily attributable to a decline in coverages.

During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge.

The analysis of 5MFY23 reveals that among value-added items, bedwear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million.

Among non-value-added items, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23. The ratings are dependent on the Company’s ability to prudently manage the working capital cycle, sustaining margins, and generating sustainable cash flows from core operations. Significant deterioration in business profile leading to deterioration in coverages and/or margins may impact the ratings.

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March 29, 2023

PACRA Maintains Stability Rating of Alfalah GHP Cash Fund

Lahore, March 29, 2023 (PPI-OT): The rating reflects strong risk profile of the Alfalah GHP Cash Fund’s (or the “Fund”). The Fund’s good credit quality and sound liquidity profile emanate primarily from its mandate to invest in Government Securities and in bank deposits. At end Dec’22, ~50.8% of Funds assets were allocated to T Bills, ~38.4% in Banks, ~3.6% in CPs whereas the remaining was invested in Others. As per the investment policy, the weighted average maturity of the Fund did not exceed 90 days during the period ending on 31st Dec’22.

While at end Dec’22, the WAM and Duration of Fund stood at 19 days, limiting the exposure to credit risk and interest rate risk. The unit holding pattern of the Fund was ~77.68% representing top ten investor concentration; exposing the Fund to a moderate level of redemption pressure. Going forward, the Fund intends to maintain the current allocation strategy. Material changes in the Fund’s asset allocation strategy, impacting its credit quality and/or exposure to interest rate risk, would affect the rating.

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March 29, 2023

PACRA Maintains Entity Ratings of Sindh Microfinance Bank Limited

Lahore, March 29, 2023 (PPI-OT): The ratings reflect the parentage and association of the bank with a financial institution and ultimately with a sub-sovereign. The bank has a conservative risk appetite. With the changing market conditions, the asset infection ratio stood at 3% as of end-Dec’22.

The net profitability of the bank exhibited growth to PKR 41mln in CY22 (CY21: PKR 27mln) owing to a rise in markup earned from advances. Moreover, a rise in GLP as micro-credit loans were recorded at (CY22: PKR 1,253mln; CY21: PKR 920mln), which is reflective of the growth in the last year.

The lending portfolio concentration is dominated by the flagship product “Sujag Aurat” (Visionary Women), focused on women’s entrepreneurship and financial inclusion. A major share of the funding has been obtained from the State Bank of Pakistan while a small chunk is through financial institutions.

Recently, funding from SBP has reflected a reduction attributable to controlling the finance costs by the management. Deposits surged to PKR 600mln (CY21: PKR 271mln) mainly driven by an increase in the savings account. During CY22, the equity of SMFB was recorded at PKR 1bln (CY21: PKR 969mln), the Bank has plans to apply for a National Level License in CY23.

The ratings draw comfort from the Bank’s association with the Government of Sindh. The financial risk profile is reflected by sanguine liquidity, adequate profitability, and low investment in non-earning assets. Going forward, the sustainability of profits and asset quality shall remain key essentials.

Pakistan Microfinance Industry (MFI) comprises 50 microfinance providers including 30 microfinance institutions (MFIs). Active Borrowers continued the increasing trend as 8.5 million borrowers were achieved during CY22, an increase of 5.6% compared to CY21.

Similarly, the GLP surpassed PKR 448bln during CY22, an increase of 26.1% compared to the GLP in CY21. The further analysis explains the major contribution to the growth of active borrowers and GLP was contributed by the MFB peer group where Mobilink MFB was at the top of the list due to the significant adoption of digital credit and greater outreach to the customer base.

NBMFCs peer group also contributed to the increase by adding 94,000 active borrowers and PKR 2.6bln in GLP. In the case of MFBs, PAR less than 30 days slightly increased to 5.3% (CY21: 5.2%). However, the PAR less than 30 days of MFIs recovered to report at 4.1% in CY22 (CY21: 5.5%).

The ratings are dependent upon the bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact. Given the strong financial muscle of the sponsor, the Bank’s propensity to protect its performance indicators is imperative.

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March 29, 2023

PACRA Maintains Entity Ratings of Gharibwal Cement Limited

Lahore, March 29, 2023 (PPI-OT): Gharibwal Cement (the Company) has annual production capacity of 2.1mln tons. The Company has been conducting its business by selling cement to the localities located in close vicinity to the plant located in Ismail Wal District Chakwal. Gujranwala division remained the Company’s key market. The cement sector latest period 1HFY23 reported a reduction of 17% in cement production reflecting on economic downturn.

Increase in prices of all the construction materials has impacted demand for cement as well. Going forward, the same trend is expected to continue throughout the remaining fiscal year owing to economic constraints and political uncertainty. The company recorded a decrease of 5.2% in total dispatches for FY22.

Though the Company observed volumetric decrease in cement dispatches during FY22 but its topline has improved to PKR 16.193bln owning to incremental selling prices (FY21: 12.17bln). Therefore, showing a significant increase (33%). Similar trend was noticed in the first quarter ended Sept 2022 (1QFY23: PKR 3.82bln, 1QFY22: PKR 3.18bln).

The Company has equity base of PKR 16.8bln whereas it’s leveraging stands at 6.7%. The overall margins of the company also improved as compared to FY21 owing to better retention prices. In order to curtail the increasing energy prices, the Company has completed the construction and operations of Waste Heat Recovery (WHR) plant that generates electricity up to 12MW from waste hot gases of the process and 8MW from coal fired system.

Keeping the current phase of expansion in view, Gharibwal is working on its line II expansion project to expand its current capacity by 10,000 TPD in order to maintain their market presence in the industry. The financial profile remains adequate as long-term leveraging expected to increase if expansion would be financed with debt mix. The ratings draw comfort from sponsor families, having prime focus of the company.

Industry’s dynamics encompassing infrastructure development hence rising local demand is seen as an opportunity for the cement manufacturers. The ratings are dependent on upholding the company’s business vis-à-vis financial risk profile in the current economic scenario.

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March 28, 2023

PACRA Maintains Entity Ratings of SAFCO Microfinance Company (Private) Limited

Lahore, March 28, 2023 (PPI-OT): SAFCO Microfinance Company (Private) Limited (‘SMCPL’ or the ‘Company’) is a Microfinance Institution (MFI) governed by the Securities and Exchange Commission of Pakistan under Section 16 of the Companies Act, 2017. The company is licensed to operate under NBFC (Establishment and Regulations) Rules, 2003, Non-Banking Finance Companies, and Notified Entities Regulations 2008. It has been in operation since 2009. The key element is that MFIs are not permitted to mobilize deposits, this element provides funding constraints. SAFCO is a for-profit organization, hence, the source of funding comprises a) Shareholders’ equity, b) loans, and c) Internal generation of profits.

The company’s profitability culminates in integral capital generation at a decent rate. The second major source of funding is borrowings, for which the company majorly relies on local avenues primarily including PMIC, with some foreign portion. The ratings also incorporate the vulnerability in business due to low market share and limited geographical presence. Recently, the company has enhanced GLP, leading to an improvement in markup earned.

However, total income declined on account of the exchange losses and higher costs of borrowing and remained stagnant at PKR 468mln at the end-June’22 (FY21: PKR 492mln). The Quantum of NPLs has increased on a YoY basis, where the company prudently recorded higher provisions to provide a cushion against the current and potential NPLs. Provisioning against NPLs along with higher non-markup expenses caused net profitability to dilute. The Institution’s financial risk profile displays a stable outlook with fine profitability margins despite a fall in asset quality. Going forward, the sustainability of profits along with asset quality are key essentials.

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March 28, 2023

PACRA Maintains Entity Ratings of JWS Pakistan

Lahore, March 28, 2023 (PPI-OT): JWS Pakistan (‘JWSP’ or ‘the Institution’) is a Microfinance Institution (MFI) governed by the Securities and Exchange Commission of Pakistan (SECP) under Section 42 of the Companies Act,2017. The Institution is licensed to operate under NBFC (Establishment and Regulations) Rules, 2003, Non-Banking Finance Companies and Notified Entities Regulations 2008. It has been in operation since 2015. The key element is that MFIs are not permitted to mobilize deposits, and they are also not backed by any stakeholder equity due to their status as “Companies Limited by Guarantee”. These two elements, in combination, provide funding constraints, while they also delimit the boundaries of risk. JWSP is a not-for-profit organization, hence, the source of funding comprises a) internal generation of profits, b) loans, and c) grants.

Over recent years, the Institution has sizably enhanced GLP which lead to improved markup earned, resultantly net markup income also reflected an increase. Total income witnessed an upsurge to PKR 1,103mln during FY22 (FY21: PKR 645mln). Despite higher provisioning expenses, net profitability improved manifolds, and during FY22 net profit augmented to PKR 126mln (FY21: PKR 74mln). The Institution overcame the recent increase in non-performing loans due to the expiration of SBP’s deferment scheme period, attributable to efficient fieldwork which resulted in 100% cumulative recovery. Hereby, the infection ratio remains one of the lowest in the industry.

Sustained asset quality will remain an important factor in the future. The Institution majorly relies on local avenues for borrowings, primarily PMIC. The funding base strengthened, during last year, attributable to foreign funding which shall fuel growth in upcoming years. The institution’s cost of funds remained under control. The ratings also incorporate the vulnerability in business due to low market share and limited geographical presence. Room for growth in the technological domain exists.

Furthermore, the Institution has added more branches where the cumulative number has surpassed 110. The ratings are dependent on the Institution’s aptness to sustain positive performance indicators amidst growth in business volumes. Ratings will monitor expansion and the impact of technological progress on the operational and risk efficacy of the Institution.

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March 21, 2023

PACRA assigns Initial rating to Lucky Electric Power Company Limited – PPSTS-7 – PKR 5bln – Feb23

Lahore, March 21, 2023 (PPI-OT): Lucky Electric Power Company Limited (“LEPCL” or “the Company”) has set up a 1x660MW (gross) coal-fired power plant. The project achieved COD in March-22 and is successfully connected to and providing electricity to the grid. The primary fuel is Coal; a coal supply agreement is signed with Sindh Engro Coal Mining Company (SECMC), SECMC will provide the coal from its developing Block-II (Phase III), which will be started in May-24. The previous tentative month was May-23. The Company has also signed imported coal supply agreement with reputable coal suppliers.

Currently, plant is generating electricity through the mix of local and imported coal. The Company has generated 1.8mln MWh since Mar’22. The Company has generated a topline of ~ PKR 45.7bln during 6MFY23. Lucky Electric Power Company Limited generated a humble bottom line of ~PKR 2.19bln during the same period. Comfort is drawn from the experience of O and M contractor – KEPCO. Going forward, the Company’s main focus would be to keep the plant operational.

The Company has procured short-term financing facilities aggregating to PKR 45.2bln (including the debt instruments amounting to PKR 27bln) for operational needs. The financial strength and experience in the energy chain of the sponsoring company Lucky Cement – are considered positive for the ratings. Further, the sponsor has given explicit comfort to provide sufficient liquidity support. This is a key consideration in the assigned ratings.

However, considering the unusual increase in working capital requirement due to the significant devaluation of PKR, supply chain issues and tariff adjustments LEPCL is striving to manage its need. The offtake agreement is with CPPA-G, which will, upon the plant’s availability as per the contract, provide capacity payments even if no purchase order is placed. The Government of Pakistan has given a payment guarantee against dues from CPPA-G. The management’s ability along with the explicit support from the sponsor to effectively manage operational risks provides comfort to assigned ratings. The trend in operational profitability would bode well for rating.

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