Press Release

JCR- VIS assigns initial ratings to Waves Singer Pakistan Limited

Karachi, September 24, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A/A-2’ (Single A/A-Two) to Waves Singer Pakistan Limited (WSPL). 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’.

WSPL, the holding company, is principally engaged in retailing and trading of domestic consumer appliances and other light engineering products, besides the manufacturing and assembling of the same. The ratings take into account consolidated numbers of all group companies and incorporate that the marketing arrangements, having positive impact on consolidated gross margins, will continue within the group companies. The assigned ratings of WSPL also take into account considerable market penetration of its two brands, Waves and Singer within the consumer durable industry of Pakistan.

WSPL became a merged entity in FY17 following the merger of Cool Industries (Private) Limited (CIPL) and Link Wel (Private) Limited (LWPL) with Singer Pakistan Limited (SPL). CIPL was primarily engaged in the manufacturing and sale of consumer appliances under the brand name “Waves”, while LWPL, an associated company of CIPL, was engaged in the business of import and trade of air conditioners and home appliances. Pursuant to the merger, WSPL sells its products under the two brands, Singer and Waves.

WSPL’s brand ‘Waves’ is the market leader in the deep freezer segment, while it also commands a reasonable share in the refrigerator segment. ‘Singer’ sales mainly include refrigerators and air conditioners. During 1HFY18, production of the company was higher due to upsurge in its products demand. Higher production resulted in increased investment in working capital which was financed with mix of internal cash generation and higher utilization of short-term borrowings. Going forward, production is projected to increase on the back of utilization of existing production facility in two shifts, instead of one, and also on account of modest increase in existing capacities.

During 1HFY18, gross sales of WSPL stood higher on the back of higher volume sold coupled with incremental revenue from the two subsidiaries. Gross margins remained stable and are considered adequate. Interest expense increased on the back of higher average borrowings. On account of higher sales and gross margin, net profit also stood higher during 1HFY18. Going forward, profitability is projected to enhance primarily on the back of higher volume of products to be sold, the same is contingent upon growth in disposable income of consumers which would result in increased demand of these products. Deep freezer and refrigerator are expected to remain the primary revenue driver, however share of other products in the revenue mix including air conditioners, washing machine, LED TVs is also projected to increase. As major proportion of raw material is imported, therefore cost increase as a result of exchange rate variation is passed onto the consumers by the manufacturers; same practice is adopted by WSPL.

The company’s extended cash cycle is mainly being managed through procurement of additional short-term borrowings. FFO remained positive while DSCR remained adequate during 1HFY18. Going forward, FFO is projected to increase on the back of higher profitability, while coverages are also expected to improve. Increase in cash flows is highly dependent upon attainment of sales targets; the same remains to be seen over time. Close monitoring of working capital requirements and debt servicing capacity remain imperative. Given fresh equity injection and profit retention, TIER-1 equity of the company enhanced post-merger. However, leverage indicators increased slightly due to higher utilization of short-term borrowings and increase in trade payables in order to manage working capital requirements of the company. Maintaining sound coverages and managing financial risk prudently in a competitive market remain critical for the ratings.

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, 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