Press Release

JCR-VIS Assigns Initial Entity Ratings to Thal Limited

Karachi, November 20, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘AA/A-1+’ (Double A /A-One Plus) to Thal Limited (THAL). The long-term rating of ‘AA’ signifies high credit quality and strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-1+’ signifies highest certainty of timely payment; Short term liquidity, including internal operating factors and /or access to alternative sources of funds, is outstanding and safety is just below risk free Government of Pakistan’s short-term obligations. Outlook on the assigned ratings is ‘Stable’.

The assigned ratings take into account conservative financial policy of the company as reflected by healthy liquidity, prudent dividend payout history and very low projected levels of debt, if any, over the rating horizon despite significant investments being undertaken by the company. Liquidity profile is considered strong on account of healthy cash flows, low working capital intensity, strong current ratio and sizeable liquid assets carried on the balance sheet. Further, the ratings factor in established track record with more than two decades of experience, dominant market share (in flagship products) and technical collaborations with international players in the automotive components business. Ratings also incorporate sound corporate governance infrastructure along with THAL’s association with House of Habib, an established conglomerate with presence in automobile, building materials, packaging, plastics and financial services.

THAL’s operations are divided into two divisions Engineering and Building & Allied Materials. Engineering has presence in all segments of the automotive industry while Building & Allied Materials is the non-automotive engineering division which comprises jute, paper sack and laminate businesses. The company has ventured into the energy chain by undertaking investments in Sindh Engro Coal Mining Company Limited and ThalNova Power Thar (Private) Limited (through its wholly owned subsidiary Thal Power (Private) Limited). For Engineering Division, demand outlook for the auto sector, increase in competition from existing and new auto part manufacturers and any adverse change in the operating environment and duty structure may impact business risk profile of the company. Nevertheless, a diversified revenue profile across product segments is likely to support steady topline growth over the medium term.

Net sales of the company have increased at a Compound Annual Growth Rate (CAGR) of 13% over the last 5 years (FY14-18) on account of healthy growth in vehicle sales of major customers and higher jute off take by government. Profitability profile is supported by sizeable dividend income from investment portfolio. Volumetric growth and stable margins are projected to support earnings over the ratings horizon while income from investments is also projected to contribute significantly to the bottom line. Going forward, ratings are dependent on achieving projected revenue growth and cash flows, maintaining prudent financial policies while further strengthening market position in key business segments. Materialization of dividend income from investments in the energy sector could act as a positive rating driver.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Javed A. Callea

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