Pakistan Cables outlook stands negative: VIS

November 20, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Pakistan Cables Limited (PSX: PACL) at ‘A’ for the long term and ‘A1’ for the short term, though with a negative outlook for the future.

The medium to long term rating of ‘A’ signifies good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short term rating of ‘A1’ denotes strong likelihood of timely repayment of short-term obligations with excellent liquidity factors.

To recall, the previous ratings action was announced on August 01, 2023.

The assigned ratings reflect strong sponsor profile, well-established brand image, and its leading position in Pakistan's wire and cable industry.

However, business risk remains elevated due to rising input costs, subdued economic environment, and increasing competition from the unorganized segment.

The Company achieved higher turnover in FY24, primarily driven by price and volumetric growth. However, gross margin was constrained by a sharp rise in production costs, mainly due to increased raw material and energy prices.

This contraction in gross margin, along with higher operating expenses and a notable rise in financial charges, led to decline in net profitability in FY24, culminating in a net loss for 1QFY25.

The company has made significant capital investments in a new production facility, which has now commenced partial operations.

However, the ongoing expansion has elevated PCAL's financial risk, with higher gearing and leverage ratios.

Liquidity remained stable, supported by a steady current ratio and an improved cash conversion cycle. Management anticipates that increased production levels will help improve margins going forward.

Ratings remain sensitive to improvement in margins and debt coverages as well as deleveraging of balance sheet.

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