PACRA maintains entity ratings of Ghani Chemical Industries

June 13, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Ghani Chemical Industries Limited (PSX: GCIL) at “A” for the long term and “A1” for the short term with a stable outlook forecast, the latest press release issued by PACRA showed.

The rating reflects the prominent position of GCIL in the manufacturing, sale, and trading of medical & industrial gases and chemicals.

The industry largely possesses an oligopolistic structure, benefiting the players, which allows GCIL to consistently deliver high-quality products and services.

During Covid-19, the installation of dedicated medical gas capacities in hospitals resulted in a change in the revenue mix and showed considerable growth in the healthcare segment.

As of now, the product portfolio has stabilized along the demand yield curve, indicating a more balanced and consistent state in the industry.

The demand from the steel, automotive, and shipbreaking industries remained weak due to the country’s macroeconomic challenges.

In line with its commitment to expanding and strengthening its operations, the board of directors of GCIL has merged G3 Technologies Limited with/ GCIL and successfully achieved its objective of getting listed on the Pakistan Stock Exchange (PSX).

During 6MFY23, the top line of the company declined by 8% as compared to the same period last year, and margins also showed dilution at all levels due to macroeconomic turbulence which resulted in reduced demand by large-scale manufacturing.

All four plants of Ghani Chemical Industries Limited are currently operational and overall capacity utilization stood at 65%.

Due to reduced demand from one of the renowned customers, the company’s dedicated plant was under-utilization.

The company has already commenced the construction work for the setup of its 5th Air Separation Unit (ASU) Plant of 275 Tonnes per day (TPD) capacity for medical and industrial gases in KPK.

The financial risk profile of the company is deemed satisfactory, with comfortable coverages, cash flows, and a stretched working capital cycle which is an industry norm.

The company's capital structure is leveraged, with borrowings consisting of long-term to support expansion and short-term for working capital management.

The ratings are dependent on the company's ability to effectively utilize enhanced capacities.

At the same time, management of financial risk, particularly debt coverages, remains important, wherein any further deterioration would have negative implications for the ratings.

Consistent growth in market share and improved margins would support ratings.

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