VIS maintains entity ratings of At-Tahur

June 14, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of At-Tahur Limited (ATL) at ‘A-’ for long-term and ‘A-2’ for short-term with a negative future outlook, the latest press release issued by VIS showed.

Outlook on the rating is revised from ‘Stable’ to ‘Negative’ mainly on account of pressure on cash flow coverages.

The previous rating action was announced on April 20, 2022.

The company operates a dairy farm to produce and pasteurize milk, manufacture dairy products, and manage the cold chain and its logistics.

The packaged milk industry in Pakistan represents only 10% of the overall milk consumption, however, faces intense competition among the packaged milk players. Loose milk dominates the market.

ATL on the back of strong brand equity and a well-diversified product range has shown growth over the years.

Furthermore, ATL has recently diversified into non-dairy products.

In this context, the company has introduced mango nectar and peach ice tea in the local market.

During FY22 and onwards, the growth in revenue was attributed to a combination of price increases and higher sales volumes.

The gross margins excluding net gain arising at time of milking improved owing to higher sales of raw milk and yogurt while the company also managed to earn good margins on the sale of raw milk during the demand season.

Going forward, margins are expected to be supported by economics of scale, increase in sales contribution from high-margin products and adding a non-dairy segment to their product portfolio.

Liquidity indicators witnessed some deterioration lately.

Consequently, Funds from operations (FFO) declined in 9MFY23 mainly on account of lower operating cash before working capital changes and higher finance costs paid.

Coverages in terms of FFO to long-term debt and FFO to total debt have declined on a timeline basis in 9MFY23.

Meanwhile, a Similar trend has been witnessed in the case of debt service coverage ratio.

While maintaining revenue growth, profitability, and margins is important, improvement in debt service coverage is pivotal for the assigned ratings, going forward.

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