VIS reaffirms entity ratings of EMCO Industries

November 16, 2022 (MLN): EMCO Industries Limited (PSX: EMCO) has informed that the VIS Credit Rating Company Ltd. (VIS), a 'Full-Service rating agency, has reaffirmed the entity ratings of `A-/A-2' assigned to the company.

The medium to long-term rating of 'A-' denotes good credit quality with adequate protection factors.

The short-term rating of 'A-2' signifies good certainty of timely payment with sound liquidity and company fundamentals. Access to capital markets is good along with low-risk factors. The outlook on the assigned ratings is 'Stable.

The assigned ratings take into account EMCO's strategic market position due to the provision of highly specialized products; high voltage porcelain insulators and substation products used during transmission, at grid stations, and for the distribution of electricity, the company further added.

The ratings derive strength from the reliance of the power sector on the company's products used at the source of generation, at grid stations, and for the onward distribution of electricity.

Furthermore, the comfort is also drawn from the steady demand for products emanating from government and semi-government contracts, premium private-sector electricity generation companies in Pakistan, and also some large-scale energy sector contractors and transformer manufacturers.

Recently, the company registered growth in topline on account of a volumetric increase coupled with higher average prices. The gross margins decreased slightly mainly due to an increase in both local and imported raw material prices amidst an inflationary trend and sharp devaluation of local currency during the outgoing year.

In addition, the liquidity has remained adequate in terms of cash flow coverages. The company is in process of enhancing production capacity, also removing bottlenecks, and plans to introduce a new product line to meet growing demand; funded through a mix of long-term debt and own sources.

Leverage indicators are projected to increase on account of the mobilization of additional long-term borrowing for capex and higher short-term borrowings in line with working capital requirements.

Meanwhile, the rating factor in positive demand prospects of insulators in view of increasing per capita consumption of electricity and continued capex in power generation capacity of the country.

Moreover, rehabilitation of damaged infrastructure due to the recent flooding is expected to further uplift demand for the products. The ratings would remain sensitive to the timely completion of the ongoing enhancement while achieving projected growth in revenue and profitability.

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