VIS assigns an initial rating of ‘A-’ to Asian Food Industries

February 22, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has assigned an initial rating to Asian Food Industries Limited of ‘A-’ for long term and ‘A-2’ for short term with a stable outlook forecast, the latest press release issued by VIS showed.

The medium to long-term rating of ‘A-’ reflects good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy.

The short-term rating of ‘A-2’ signifies good certainty of timely payment, liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small.

AFI is a family-owned business operating under the brand name ‘Mayfair’. Mayfair has strong brand recognition in the local confectionary and biscuits market.

AFI was the first in Pakistan to introduce bubble gum chews and deposited candies. The company sells its products with a vast network of about 450 distributors and sub-distributors spread across the country.

Being focused on the middle to upper middle segment of the growing, largely younger market, the business risk is classified as medium to low.

The biscuits market segments into crackers, savory, and sweet biscuits. The market reflects changing consumer preferences toward health-conscious trends.

A similar trend has been witnessed in the confectionery market reflecting a growing demand for healthier options and premium, artisanal products.

Online accessibility has facilitated this shift, providing consumers with a wider range of choices to suit diverse preferences.

The seasonal spikes in the local market sales, particularly during religious festivals and wedding seasons, underscore the cultural significance and consumer demand that drive the industry.

The pricing dynamics of local food products, including those in the biscuit industry, are significantly influenced by the costs of major raw materials like sugar, wheat, edible oil, and potatoes.

Meanwhile, the industry also relies on imports for flavors and certain other components, suggesting a complex interplay between local and global market forces in shaping the sector's growth and operational strategies.

AFI has a sound marketing and distribution network and its price discovery power is reflected in increasing sales in weak macroeconomic scenario.

There has been an increasing trend in profitability despite decreasing gross margins primarily on the back of significant growth in sales.

The coverages have been improving consistently with sound cash cycle mainly driven by local sales based on advance payments.

Similarly, an improving trend has been witnessed in the gearing ratio; the said ratio is further strengthened when viewed on net debt basis (taking into account sizeable cash and bank balances).

Going forward, gearing is projected to increase, though remain manageable, on account of the mobilization of long-term debt for the planned expansion.

Ratings remain sensitive to sustainability of revenues and improvement in net margins, going forward.

Copyright Mettis Link News