Press Release

VIS Assigns Initial Entity Ratings to Automobile Corporation of Pakistan
 

Karachi, July 25, 2019: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to Automobile Corporation of Pakistan (AUTOCOM). The long term rating of ‘BBB’ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur 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’.

AUTOCOM is a family owned business with principal activities of the company including fabrication, designing, repairing and servicing of trailers, tankers and other heavy vehicles through two facilities at West Wharf and Port Qasim. The product line of the company comprises petroleum tankers, trailers and other specialized vehicles (refuelers, garbage compactors, and municipal vehicles). Major client base comprises Oil Marketing and Logistic Companies. Diversification in product line is expected in view of planned introduction of refrigerated cargo assembly line, tippers, and aluminum fabrication. Assigned rating incorporate AUTOCOM’s dominant position amongst UN ADR (the European Agreement concerning the International Carriage of Dangerous Goods by Road) compliant trailer manufacturers; however informal sector still continues to cater to bulk of the demand.

Assessment of business risk profile incorporates improved demand dynamics given Government’s focus on UN ADR standards compliant tankers and rationalization of tariffs on trailers by GoP. In light of the aforementioned factors, demand for trailer and tanker manufacturers has witnessed an increasing trend. However, weak macroeconomic environment and slow-down in sectors catered to by the Company may impact sales volume. VIS has noted that sales volumes have slightly increased during FY19 while increasing replacement demand of oil tankers and product diversification should support sales. AUTOCOM’s competitive advantage stems from long term association with foreign technology partner- Industrie Cometto of Italy, ISO 9001 certification, strength of a multi-disciplinary engineering team, a 24/7 after sales service and strict in-house engineering quality control.

Financial risk profile has improved on a timeline basis. In absolute terms, profitability profile has strengthened on account of higher sales volume. However, gross margins have witnessed a slight decline owing to currency devaluation given reliance on imported raw material. Liquidity profile is considered adequate with sufficient cash flows for servicing outstanding debt obligations. However, quantum of cash flows is small and size of equity base is relatively low which limits the company’s leveraging ability. Trade debts aging profile remains with in manageable levels. Moreover, working capital cycle of the company is relaxed with advance receipt on sales and raw material payment terms of 60-90 days. Given no further increase in long term debt and projected decrease in short term borrowings, capitalization indicators are expected to remain sound over the rating horizon. Ratings remain dependent on enhancing quantum of future cash flows and profitability.

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

Atiq Anwar Mahmudi
Advisor
Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.vis.com.pk/kc-meth.aspx

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Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (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.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.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited