Press Release

JCR-VIS assigns initial ratings to The Thal Industries Corporation Limited

Karachi, October 29, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A-Minus/A-Two) to The Thal Industries Corporation Limited (TICL). The medium to long-term rating of ‘A-’ denotes good credit quality with adequate protection factors. Moreover, the risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamental and liquidity factors. Outlook on the assigned ratings is ‘Stable’.

The ratings assigned to TICL incorporate its cornerstone position in a diversified industrial conglomerate, “Almoiz Group of Companies” having business interests in beverage, sugar, steel, power generation and textile. The ratings incorporate integration with group owned beverage company which caters to the production and regional distribution of one of the leading international soft drink brands. The ratings also factor in sizeable crushing operations and sound business relationships with institutional customers assisting sustainability in sales to a certain extent. In addition, the company’s recent efforts towards revenue diversification through forward integration into co-generation provides support to profitability and partially assists in withstanding the impact of prevailing downturn in sugar prices. However, heightened business risk owing to overall dismal performance of sugar sector translated into weakening of financial risk profile the company. Nevertheless, the government’s recent initiative of allowing export of 1.0m tons of sugar is expected to help in reducing surplus stock and to have positive connotation for the overall industry.

The company has exhibited healthy profits in the last few years. However, the sales revenue of the company declined during 9M18 in comparison to the last corresponding period mainly on account of decline in average selling price of sugar. The sugarcane procurement price was maintained in Punjab and with TICL’s production units based in Punjab, coupled with slump in retail prices, the gross margins of the company declined during 9M18. Moreover, financial cost increased due to higher utilization of funding lines in the current period to meet higher working capital requirements. The adverse impact of low margins was partially mitigated by higher other income primarily including subsidy from Federal and Provincial Governments on export of sugar. The company’s 22.4MW power plant became operational in Dec’17 having a half year impact of about Rs. 1.0b on revenues during 9M18. Despite the aforementioned, the company reported a net loss during 9M18. Going forward, the company expects a positive full year impact of electricity sale, however, the performance of the company will be primarily dependent on the trend in sugar prices.

Cash flows and the related coverages have remained healthy over the years. However, in line with reduced profitability, Funds from Operations (FFO) declined considerably during the ongoing year. Given decline in FFO and increase in higher debt levels, FFO to total debt decreased; moreover, debt service coverage, otherwise adequate, also stood lower.

The exponential growth in debt levels during the ongoing year is cyclical in nature, mainly pertaining to higher short-term borrowings arranged primarily to finance stock inventory and to finance sugarcane procurement. Long term debts mainly pertained to borrowing to setup co-generation plants. Given higher short-term borrowings carried on the balance sheet together with lower equity base on account of higher dividend payout and loss incurred during the ongoing year, gearing and leverage indicators have witnessed an increasing trend on a timeline basis. The ratings are dependent on projected improvement in gearing and debt coverage, going forward.

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

Jamal Abbas Zaidi

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