PACRA maintains entity ratings of Ghandhara Industries Limited

October 23, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Ghandhara Industries Limited (PSX: GHNI) at "A+" for long term and "A1" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

GHNI is one of the prominent automobile entities in its niche of trucks and buses.

The primary business activities of the company include; assembling and marketing of trucks (LDTs, MDTs & HDTs), buses, D-MAX pickups, and body fabrication services.

GIL’s core strength can be defined by its alliance with ISUZU – a leading Japanese brand in the trucks & buses sector.

ISUZU has enabled the company to build a strong fortress in the competitive industry of Pakistan. The level of localization in the trucks and buses segment is relatively low when compared to other sectors operating in Pakistan.

During FY23, the growth in the trucks and buses industry of Pakistan remained historically laggard, as it is directly related to economic activities.

Local truck manufacturing experienced a massive decline in FY23 as it fell by 45.15% YoY; while total bus manufacturing declined by 6.03% compared to the same period last year, mainly due to import restrictions imposed on auto and allied sector while opening of LCs on back of depletion of FX reserves.

The sectoral performance remained uncertain and also kept the margins under pressure owing to macroeconomic challenges, thereby affecting the overall cost of doing business.

Consequently, GIL reflected the same in its topline and recorded negative growth of 40% at the end of Jun’23.

The company’s net profitability matrix deteriorated explicitly due to lower sales volume and ramped-up finance costs during the review period.

In the future, the company intends to cover principal risks and uncertainties by securing an undisrupted supply of CKDs and expanding its customer base to ensure targeted growth in sales volumes and profits.

Generally, GHNI's strategy to cover customers' advances has proved to be beneficial as the business relies less on borrowed capital to fuel growth and other initiatives.

The cash flows of GIL from its operations are considered adequate; showing a reasonable level of coverage.

Over the years, the company has been able to sustain its edge in the domestic automotive market while managing uprising competition and securing a high share.

The sponsoring group has successfully built synergies between the associated concerns operating in the auto and allied sectors of Pakistan.

Besides, it upholds good corporate governance standards. Their business acumen is enriched by the group’s stake in the country’s tyre manufacturing company as well.

The financial risk profile is signified by a finer working capital cycle and leveraged capital structure (majorly comprised of short-term borrowings).

The ratings are dependent on upholding the company’s business as well as financial risk profile amid unfavorable macroeconomic conditions.

Improvement in margins and intact coverages shall remain imperative. A key element is management’s ability to strategies the sustenance of market share during the demand crunch is quite crucial.

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