Press Release

VIS Assigns Initial Ratings to Smartlink Technologies
 

Karachi, October 14, 2021: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to Smartlink Technologies (SLT). The medium to long-term rating of ‘BBB’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned ratings is ‘Stable’.

SLT is a partnership firm principally involved in the distribution of smartphones through online platforms and physical stores in Pakistan. All the partners are actively involved in firm’s operations. SLT has non-exclusive distribution agreement with Xiaomi, one of leading global consumer electronics and smartphone manufacturing company. SLT is the only distributor in Pakistan running exclusive stores and online website of this brand. Ratings derive comfort from fixed distribution margins with exchange rate risk borne by Xiaomi, and some additional margins via exclusive website and physical stores. Sales more than doubled in FY21 on the back of higher volumetric sales and some increase in average product prices. Increase in sales was in tandem with overall increase in demand of smartphones and laptops during Covid-19 owing to work from home and e-learning trends. Ratings also incorporate positive prospects for overall smartphone industry of Pakistan, in view of increase in internet penetration, younger demographics and economic growth. Implementation of major reforms by Pakistan Telecommunication Authority to regulate the sector has also provided impetus to the organized smartphone distribution.

Liquidity of the firm has remained adequate in terms of coverages. Given the firm has to maintain hundred percent cash margin on import of mobile phones, working capital requirements have increased notably in the outgoing year in line with increase in scale of operations, leading to higher leverage indicators. However, commencement of local manufacturing of Xiaomi smartphones in Pakistan, expected in the ongoing year, is expected to bode well for the distributors. While SLT currently holds four major distribution agreements, its dependence primarily on one principal, limits the business risk diversity. A private limited company has been incorporated and financial statements of the newly incorporated company have not yet been drawn on the basis of transfer of assets and liabilities from the firm to private limited company, which is expected soon. Ratings will remain dependent on maintenance of distribution agreement with Xiaomi and scaling up of operations while maintaining leverage indicators and coverages at a comfortable level.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz at 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at info@vis.com.pk


Faryal Ahmad Faheem
Deputy CEO


Applicable rating criterion: Corporates (May 2019)
https://docs.vis.com.pk/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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited