PACRA maintains entity ratings of Service Industries

September 21, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Service Industries Limited (PSX: SRVI) at "AA-" for long term and "A1" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

SRVI maintains a twofold profile; one as a holding company (comprising substantial investment in Service Global Footwear Limited & Service Long March Tyres (Pvt.) Limited) and the second as an operating company.

With a clientele base spread across the globe, the group has built itself as an acclaimed player through channeling high-quality products and affirmation of multi-brand strategy under its umbrella.

As an operating entity, SRVI executes its business activities in tyres & tubes and footwear markets under the eminent brand name ‘Servis’ and also involved in the sales of technical rubber products and spare parts for automobiles.

The ratings reflect the company's longstanding presence in a given industry environment underpinned by the foundation stone for Servis Group.

To manage risk, align financial goals, and ensure growth opportunity; SRVI attained reasonable diversification in its revenue streams coming from tyres & tubes manufacturing, footwear, technical rubber products, and spare parts for automobiles.

Challenging macroeconomic indicators like raw materials prices, currency devaluation, policy hikes, and spikes in energy costs have squeezed the margins of related industries.

Management intends to materialize the envisaged strategies by capitalizing on the brand image of Servis and yield added results in the near future.

On the export front, Service Global Footwear Limited is an established entity, thus adding overall strength by providing a steady stream of dividends.

Service Long March Tyres (Pvt.) Limited has become profitable in its second year of operations, this investment is of a strategic nature and will add to the financial strength of Servis Group.

The sponsors are keenly focused on formalized group structure to ensure a smooth flow of investments through sustainable business models and eyes for possible expansions in new business avenues.

SRVI signified an upward trajectory in its business volumes amid stiff competition on a timeline basis.

During 1HCY23, revenues witnessed a growth of 24.7% (on an annualized basis) primarily on the back of inflationary prices and slightly higher volumes.

Furthermore, the company’s profitability margins have shown improvement at all levels owing to a better pricing strategy coupled with stiff cost control.

The financial risk profile is demonstrated by modest coverages, cash flows, and working capital cycle.

 Capital structure is leveraged as SIL funds its expansion by means of debt availed at concessionary rates, making the debt profile adequate.

However, the business muscle and financial arm of the group is a comfort.

The rating also incorporates strong sponsor support augmented by sound governance practices and methodical internal control systems over the years.

The ratings are dependent on the sustenance of the company’s leading position in its respective business niches and consistent growth under a challenging business environment.

Profitability in line with business expansion; prudent working capital management and maintenance of coverages shall remain imperative.

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