Press Release

JCR-VIS Reaffirms Entity Ratings of Matco Foods Limited at A-/A-2

Karachi, November 15, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Matco Foods Limited (MFL) at ‘A-/A-2’ (Single A-Minus/ A-Two). The long-term rating of ‘A-’ signifies good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on January 1, 2018.

The assigned ratings factor in MFL’s position as one of the leading rice exporters in the country and efforts at cultivating its brand in the local market. Ratings also incorporate the company’s adequate liquidity profile and improving capitalization levels post Initial Public Offering (IPO). Rice exports from Pakistan remain subject to competition from Indian rice making it difficult for Pakistani exporters to retain market share. While rice business is susceptible to incidence of adverse climatic conditions and trade restrictions, MFL is geared towards brown rice which has sizeable demand in the European Union (EU) where Pakistani brown rice has witnessed growth following suspension of Indian rice exports to the region due to high pesticide residue. Increased focus of the government on the rice sector for enhancing country’s exports bodes well for the sector’s outlook.

While majority sales of MFL comprise exports, local sales have also contributed a significant proportion to the topline. During FY18, net sales increased on the back of higher export prices although volumes declined on account of greater focus on white vis-à-vis brown rice. Slight decline in margins, along with rise in finance cost, offset by lower taxation charges, resulted in moderate growth in bottom line. Going forward, the company expects volumetric growth in rice sales and higher margin rice glucose to support profitability.

With slightly contracted margins, fund flow from operations (FFO) was reported lower in FY18. Lower FFO and higher debt repayment translated into a small reduction in debt service coverage ratio. Leverage indicators depicted improvement and stood below 1.5(x) primarily on account of augmentation in equity base post IPO. With borrowings primarily short term in nature and the company carrying a sizeable amount of saleable inventory, MFL’s ability to retire debt in a timely manner is considered adequate. The company is currently in process of completing Phase II of its rice glucose project. Developments in this regard will be seen over time.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Javed Callea (Ext: 201) at 35311861-70 (10 lines) or fax to 35311873.

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