VIS downgrades entity ratings of Hi-Tech Lubricants

January 19, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has downgraded the entity ratings of Hi-Tech Lubricants Limited (PSX: HTL) to ‘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-’ signifies good credit quality with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy.

The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals.

The previous rating action was announced on November 28, 2022.

is in the business of trading of lubricants imported from SK Lubricants, South Korea (SKL) for around two decades.

HTL sells almost all of its lubricants under the brand name ‘ZIC’. The Company also invested in a wholly owned subsidiary, HTBL that operates a blending plant since August’2016.

In Jan’20, the company commenced marketing and sale of petroleum products as an OMC under the brand name of HTL Fuel Stations in the Punjab Province.

The company currently has two storage terminals in Sahiwal and Nowshehra, respectively. At end-June’23, the Company had 29 dealer operated fuel stations in Punjab with plans to expand in KPK.

During the year, polymer segment was also added to the portfolio, in an attempt to further diversify product portfolio.

Assigned ratings take into account HTL's high business risk profile characterized by susceptibility to global and local macroeconomic factors, fluctuations in international commodity prices as well as exposure to foreign exchange fluctuations.

Locally, subdued demand in the automobile sector and high inflation have restrained consumer lubricants demand.

Petroleum product sales consistently declined year-on-year, primarily due to elevated retail prices, informal imports continuing economic slowdown.

This elevated business risk in the oil sector is expected to remain in the current calendar year.

Revision in ratings incorporates volumetric decline in sales, margin contraction, debt servicing pressure and equity erosion.

Despite price increase, revenues depict contraction on volume decline. Margins have been adversely impacted, particularly in the petroleum segment, due to inventory and currency losses that could not be passed on to customers amidst rising commodity prices and high inflationary environment.

Rising finance costs have further constrained margins, resulting in a negative bottom line in FY23 and Q1FY24.

While liquidity metrics remain adequate, debt servicing has come under pressure, necessitating a focus on recouping volume sales and improving margins in the ongoing year.

The capitalization profile is also constrained, with higher payouts and losses, impacting equity growth. Gearing and leverage ratios have increased, and the expansion in the OMC and polymer segments is expected to maintain an elevated capitalization profile, making it a key rating sensitivity going forward.

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