Debt servicing capacity of General Tyre decreases in 1HFY19: PACRA

April 12, 2019 (MLN): Pakistan Credit Rating Company (PACRA) has maintained entity ratings of General Tyre & Rubber Company of Pakistan Limited at A+ for long-term and A1 for short-term, with a stable outlook forecast.

The ratings reflect the company's strong foothold in its respective industry comprising 4 wheeler tyres for cars, LCVs, tractors, buses and trucks.

The company is the sole manufacturer of passenger car radial tyres catering the Original Equipment Manufacturers' (OEMs) market.

Two wheeler market, in contrast, displays a broader competitive landscape wherein General tyres holds a relatively small market share.

A well-devised governance framework alongside experienced management team is considered positive for the ratings. Association of General Tyre with Bibojee Services (Private) Limited and Pakistan Kuwait Investment Company Limited is also a consideration.

The company's core competence lies in its technical collaboration with Continental AG (German tyre company), which assures adherence to international quality standards.

Revenue stream is segmented into OEMs and Replacement Market, wherein OEMs have a higher inclination.

However, recent volatility in macroeconomic indicators, including rising interest rates coupled with weakening rupee parity has impacted the growing industry demand.

General Tyre is expecting a revival in the same over the near future, particularly in the tractor's tyres segment. This is considered essential. Resultantly, financial risk profile endured a stress in 1HFY19 as indicated from reduced topline (~15%), rising inventory levels on the backdrop of slow pickup of demand, and leveraged capital structure. Overall debt servicing capacity of the company decreased.

Cautious management strategies amidst changing industry environment are critical.

The ratings are dependent on the management's ability to uphold the company's leading position in its business segments; Meanwhile, perceptive management strategies to restore healthy performance indicators are imperative.