Press Release

VIS Maintains Entity Rating of Syntronics Limited

Karachi, May 15, 2023: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Syntronics Limited (SL) at ‘BBB+/A-2’ (Triple B Plus/A-Two). 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 repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings has been revised from ‘Positive’ to ‘Stable’. Previous rating action was announced on March 29, 2022.

SL is primarily involved in the manufacturing of Polypropylene Laminated Bottom Block Sacks used as packaging material mainly in cement industry. The company also manufactures polypropylene bags for its customers in sugar, poultry feed, flour, and fabric sectors. The ratings incorporate the Company’s association with the ‘Premier Group’ that has major exposure in the sugar sector and dividend income support from associated company- Chashma Sugar Mills Limited (CSML). Revision in rating outlook reflects dependence of sales on the cement sector which has high level of cyclicality as depicted by depressed demand in the ongoing year with total sales declining 18% YoY to 33.6m MT, owing to slow down in construction activity in line with the challenging macroeconomic environment.

Ratings factor in growing capacity utilization levels of the company in the review period owing mainly to higher quantum of conventional bags while output of cement sacks remained relatively stable on an annualized basis. Ratings have noted commencement of BOPP printing unit in the outgoing year to enhance customer base in rice and poultry feed markets. In an anticipation of increase demand for laminated cements sacks, the company has recently entered into expansion phase entailing construction of new unit that will increase the annual production capacity by two-fifth. At end-Dec’22, around one-half of the cost has been financed through internal cash generation while the remaining will be financed through debt. Timely completion of the same will be important from the ratings perspective.

Although assessment of financial risk profile takes into account consistent topline growth due to shift in sales mix towards stitched bags; ratings are constrained by weakening margins, cash flow coverages and rising leverage levels in the review period. Gross margins of the Company in the review period decreased largely due to rise in raw material costs, currency depreciation and lag in full transfer of costs. Net margins also exhibited a decline as financing costs jumped on the account of higher debt levels to finance higher working capital requirements coupled with policy rate hikes. Going forward, the company’s ability to reach its revenue targets and uplift its bottom-line by managing its financing costs and sustaining income from associated company will be imperative from a rating’s perspective. Liquidity profile of the Company warrants improvement with debt service coverage ratio reported less than 1.00x in the review period. Capitalization indicators are also elevated in line with higher working capital needs. Improving gearing levels in view of management’s plans to drawdown additional debt to finance expansion plan will be important.
Assigned ratings are strongly underpinned on projected improvement in financial risk profile.

For further information on this rating announcement, please contact Asfia Amanullah or the undersigned at 021-35311861-70 (Ext. 201) or email at info@vis.com.pk

Sara Ahmed
Director

VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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