VIS assigns initial entity ratings to Indus Motor Company Limited

June 18, 2019: VIS Credit Rating Company Limited has assigned initial entity ratings of ‘AA+/A-1+’ to Indus Motor Company Limited (IMC). Outlook on the assigned rating is ‘Stable’.

The medium to long-term rating of ‘AA+’ signifies high credit quality, whereas the short-term rating of ‘A-1+’ signifies high certainty of timely payments; short-term liquidity including internal operating factors and/or access to alternative sources of funds is outstanding and safety is just below risk free Government of Pakistan’s short term obligations.

The assigned ratings to IMC reflect its competitive position in local auto manufacturing industry, robust financial profile and sound business risk profile. Ratings also incorporate Company’s strong sponsor profile and ongoing efforts to enhance product competitiveness and strengthen operating performance. Ratings remain dependent on maintaining robust financial profile through business cycles and low leveraged capital structure.

Business risk profile is considered sound given solid franchise and strong competitive position in the product segment that the company operates.

Strong dealer network and declining trend in imported car sales support business risk profile. Efforts to reduce exposure to currency fluctuation through increasing localization have limited margin attrition vis-à-vis historical levels. Some cyclicality in sales due to slow down in GDP growth and frequent policy changes are key business risk factors.

Assessment of financial risk profile incorporates IMC’s strong leverage free balance sheet, robust profitability and abundant liquidity, elements that provide the company with financial flexibility and support its rating. Overall corporate governance framework is supported by strong financial planning process and sound internal control systems in place. Detailed disclosures in annual report reflect focus on transparency and disclosures.