December 12, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has upgraded entity ratings of Service Long March Tyres (Private) Limited (SLM) to a long-term rating of 'A+’ from precious rating A.
While the short-term rating is maintained at A1.

SLM is a private limited entity, operating under the umbrella of Service Group.

It was established through a joint venture between Service Industries Limited (PSX: SRVI), and Chaoyang Long March Tyre Company Limited (LM), a leading manufacturer of All-Steel Radial tyres in China, ensuring the complete transfer of technology from LM China.

 SLM Tyres has set up Pakistan’s first manufacturing facility for all-steel radial tyres, specializing in the production and marketing of radial tyres for trucks & buses.

 The assigned ratings reflect the strong ownership structure of SLM Tyres, stemming from the long-established presence and prominent market positions of SIL in Pakistan and LM in China.

This is further supported by a robust governance framework and a professional management team with diverse experience and extensive industry knowledge.

 The rating upgrade highlights the Company’s prominent position in the domestic market where it holds a substantial share of around 32% and growing exports.

 This not only aids in essential import substitution but also underscores the Company’s considerable export potential.

During FY24, SLM Tyres achieved impressive revenue growth of approximately 135.5% YoY and recorded a topline of Rs 37.95 billion where exports contributed around 32% to the top line.

 This growth was achieved through increased volumetric sales driven by optimal capacity utilization.

Further capacity expansion is underway to meet rising domestic and international demand.

The Company recorded a net profit of Rs5.36bn, reflecting a healthy net profit margin of around 14%.

The Company’s growth prospects are expected to strengthen after completing Phase II of capacity expansion, which aims to increase capacity to approximately 1.6 million per annum.

Phase III is planned to further expand the capacity to around 3.5m per annum.

The local tyre demand is primarily driven by the replacement market followed by Original Equipment Manufacturers (OEMs).

Intense competition from imported and grey market tyres necessitates high-quality products at affordable prices.

SLM Tyres intends to expand its global clientele by offering high-quality radial tyres and leveraging multiple brand names under its sponsorship.

The manufacturing facility is strategically located in S.I.T.E Area, Nooriabad, Sindh to minimize transit costs related to exports.

The Company commenced its commercial production in March 2022 and has successfully established a nationwide marketing and distribution network to meet local demand for radial tyres.

 It has also developed a significant clientele in the export segment, capitalizing on opportunities in various international markets.

The Financial risk profile is characterized by an improved capital cycle, strong liquidity, debt coverage, and a moderately leveraged capital structure.

The debt portfolio includes both STB and concessional LTB to fund capacity expansion.

The funding for the project’s proposed expansion is expected to be sourced through a combination of debt and internally generated cashflows.

The ratings are contingent on the Company’s ability to sustain revenue growth, maintain strong profitability, and uphold financial discipline.

The successful execution of its strategic plans will also be crucial to the ratings.

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Posted on: 2024-12-12T12:49:39+05:00