March 7, 2019 (MLN): Pakistan Credit Rating Agency (PACRA) has downgraded entity ratings of Exide Pakistan Limited from ‘A-‘ to ‘BBB’ for long-term and from ‘A2’ to ‘A3’ for short-term, with a ‘negative’ outlook forecast.
According to the rating agency, the ratings reflect the squeeze in the profitability of the company – both at the gross and net level.
This is an industry wide phenomenon. The competition is intense in the backdrop of reduced demand and high cost of doing business.
With a considerable improvement in the power sector, demand of UPS batteries is diminishing. Decreased demand coupled with entry of new players has intensified the competition.
Rationalization in the price – upward trend – is needed to ensure sustainability in future.
EXIDE’s leveraging has peaked and the company does not intend to raise long term debt. Debt servicing capacity is deteriorated on the backdrop of eroded margins.
EXIDE is a pioneer in the battery industry; it has a presence in Pakistan since 1968. Demand for batteries is generated through two segments (i) OEMs and (ii) replacement market.
The negative outlook captures the deteriorated business condition of the sector having negative impact on the players operating in this industry.
The ratings are dependent on the revival of subdued business volumes and impacted profitability. Prolonged downturn amidst market oversupply can have a detrimental effect.
