Press Release

JCR- VIS Reaffirms Ratings of Bunny’s Limited

Karachi, September 11, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings assigned to Bunny’s Limited (BL) at ‘A-/A-2’ (Single A Minus/A-Two). The previous rating action was announced on September 29, 2017. Outlook on the assigned rating is ‘Stable’.

The ratings assigned to BL takes into account the company’s moderate business risk profile owing to its presence in fast moving consumer goods market, largely established brand name and stable pricing leading to sustained margins and profitability. The ratings also derive strength from adequate debt service coverage and low leverage indicators. However, the ratings remained constrained on account of slow growth in revenues. The industry is also exposed to competition and volatility in demand patterns of the products.

Demand driven price risk is largely curtailed given BL’s involvement in the sale of consumer products used in day to day consumption of an average household. Moreover, growth in population coupled with increased trend of consumption of bread and bun products have created a sustainable market for the company. Inventory risk is managed by linking procurement orders with precise sale forecasts.

Sales largely remained stagnant during FY17; however, the revenue stood higher during 1HFY18 mainly on the back of enhanced marketing efforts. The proceeds from bread department, including cakes, comprised almost 92% of the total net sales. Going forward, BL expects positive momentum in earnings as a result of increase in production capacity and improved marketing campaigns. The company has made CAPEX to increase the production capacity of bread, bun, rusk and cake rusk during the period under review. The gross margins exhibited an improving trend during the period in view of increase of retail prices of end products.

Liquidity profile derives strength from adequate cash flows in relation to outstanding obligations. Given that more than two-thirds of sales are executed against cash payments, trade debts of the company remained low. Funds from Operations (FFO) remained sufficient on a timeline basis. FFO to total debt (annualized) decreased during 1HY18, though still remained adequate, on account of relatively higher long and short-term borrowings. Debt service coverage has remained sound.

Total equity, though still moderate, expanded on account of internal capital generation; albeit the company follows relatively high dividend payout ratio with more than half paid in cash dividend on average during the last three years. Around two-thirds of the company’s debt comprised long-term borrowings. With higher borrowings, gearing levels increased slightly, though remained low. However, debt leverage ratio was rationalized on account of reduction in trade payables during the period under review.

Recently, the company has completed reverse-merger with Moonlite (PAKISTAN) Limited - a listed dormant entity. The company has retained the name - ‘Bunny’s Limited’ - subsequent to the merger. As a consequence of the merger, the core equity of the company has augmented in line with realization of current revaluation surplus on land. With enhanced equity base and projected decline in overall borrowings, leverage indicators are projected to decline, going forward.

As a part of the overall strategy of moving from a family owned business to a public listed company, some of the BL’s shareholders have sold their shares to institutional investors during the last three years. Going forward, some of the shareholders plan to go for an offer for sale whereby some of the family members or the institutional investors may offer their shares to public to ascertain the fair value, to increase the free float and to ensure liquidity in the stock. The family plans to retain the major shareholding and management control in the business. The recently constituted board of the merged entity comprises two nominee directors from the institutional investors along with one independent and five family members. At present, the board comprises eight directors with four family members and four outsiders.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Javed Callea

Applicable rating criterion: Industrial Corporates (May, 2016)

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 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited