Press Release

JCR-VIS Reaffirms Entity Ratings of Muhammad Shafi Tanneries (Private) Limited

Karachi, January 26, 2018: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Muhammad Shafi Tanneries (Private) Limited (MSTL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on June 17, 2015.

MSTL is part of Shafi group of companies having presence in the leather, leather garments, specialty chemicals, food and textiles. The assigned ratings draw strength from the considerable experience of the management in the leather business. The ratings also take into account the sector dynamics in which MSTL operates, with the leather industry contributing ~5.4% of the total export earnings. The industry presently is facing a number of challenges including slowdown in the Eurozone, which is a major export destination for Pakistan’s leather industry. The ratings derive strength from sound capitalization and leverage indicators on a timeline basis.

Given fall in trade volumes of leather products globally, revenue base of MSTL has weakened on a timeline basis. Nonetheless, management anticipates business volumes to grow given its recently adopted diversification strategy. In a challenging operating environment, performance of MSTL deteriorated on account of lower operating profit. However, bottom line of the company improved on the back of support from non-recurring investment income. Going forward, profitability is expected to remain under pressure given subdued demand of leather products. Hence, achieving projected sales volumes is considered important in terms of profitability.

Liquidity profile of the company has weakened with a decline in operating cash flows. With a decline in Funds from Operations (FFO), FFO to total debt was also reported lower in FY17. Nevertheless, with no long term debt on its books, capital structure of the company is considered strong. Moreover, consistent profits earned by the company have resulted in strengthening of its capitalization levels. Total equity of MSTL stands on the higher side in comparison to peers. At these capitalization levels, leverage indicators continue to remain within prudent limits at end-FY17. A sizable proportion of the company’s equity is deployed in subsidiaries/associates in form of equity. The management plans to sell the Chinese subsidiary in the ongoing year, proceeds of which will be diverted towards its newly established associate.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) or the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.

Jamal Abbas Zaidi

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-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.JCR-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.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-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 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited