VIS maintains entity ratings of LCI

July 10, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has maintained entity ratings of Lucky Core Industries Limited (PSX: LCI) at "AA" for the long term and "A-1+" for the short term with a ‘Rating Watch-Developing’ outlook forecast, a latest press release issued by VIS showed.

The medium to long-term rating of ‘AA’ signifies high credit quality; protection factors are strong.

The short-term rating of ‘A-1+’ signifies the highest 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 previous rating action was announced on June 30, 2022.

Assigned ratings incorporate LCI’s strong financial profile and diversified presence of the company’s sponsor, Yunus Brothers Group (YBG), a leading conglomerate with a presence across multiple sectors.

Business risk profile of the company is considered well-diversified with minimal inter-dependence between segments.

Ratings take into account LCI’s market leadership position in the soda ash segment, second largest market share in polyester segment, low business risk profile of the pharmaceuticals segment, and sizeable growth potential in the animal health and chemicals and agri-sciences divisions.

While all business segments remain exposed to adverse economic conditions, ratings continue to derive strength from the diversity across industries, existence in businesses/products essential to local customers’ needs, and supported by historical track record of sustained profitability.

Assessment of financial risk profile depicts a steady increase in gearing and leverage indicators on the back of increased short term borrowings resulting from higher working capital requirements of all business segments.

However, cash flow coverage indicators remain comfortable and in line with assigned ratings.

Going forward, given the financing requirement for expansion projects along with planned acquisition, we may expect gearing levels to increase.

Short-term ratings remain sensitive to maintenance of short-term liquidity metrics in line with assigned ratings.

During the year under review, LCI divested its partial stake of 26.5% in NutriCo Morinaga, now an associate company engaged in manufacturing, marketing and distributing formula products, booking a sizeable gain of Rs9.8 billion.

In addition, LCI, through its newly established wholly owned subsidiary ‘Lucky Core Ventures (Private) Limited (LCV)’ is in the process of acquiring of 75.01% stake in Lotte Chemicals Limited, subject to receipt of requisite regulatory approvals and fulfillment of other conditions.

On account of this impending acquisition, ratings have been placed on “Rating watch-Developing” status. VIS will review the ratings on completion of the same.

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