November 17, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Agriauto Industries Limited (PSX: AGIL) at ‘A-’ for long-term and ‘A-1’ for the short term with a stable future outlook, the latest press release issued by VIS showed.

Medium to Long Term Rating of ‘A-’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy.

While a short Term Rating of ‘A-1’ signifies high certainty of timely payment, excellent liquidity factors are supported by good fundamental protection factors. Risk factors are minor.

The previous rating action was announced on August 10, 2022.

AGIL is engaged in the manufacture and sale of components for automotive vehicles, motor cycles and agricultural tractors. AGIL is part of House of Habib (HoH), an established conglomerate headquartered in Pakistan.

The sponsor profile of HoH has been incorporated into the assigned rating.

As a listed entity, AGIL has to comply with Corporate Governance regulations for listed entities, which have also been incorporated into the assigned rating.

AGIL possesses more than four decades of experience and holds long-term technological collaborations in place with international parts manufacturers.

Ratings take into account high to medium business risk profile of the company, given historical volatility in gross margins.

The volumetric sales have been affected by high prices resulting in lower demand while exchange rate fluctuations adversely impacted the costs of imported raw material.

The risk profile is somewhat supported by the fact that the company is the sole producer of car shock absorbers & struts in the local market.

The company’s sales emanate largely from institutional customers and depict counterparty concentration.

However, the concentration risk is addressed by binding contracts in place with clients.

The company posted a loss during FY23 due to lower sales and stressed gross margins. However, some recovery in margins was witnessed in 1QFY24.

As a result, FFO and coverages improved, and gearing remained low. While maintaining low leveraged capital structure, improvement in financial performance and debt service coverages are important for the assigned ratings.

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Posted on: 2023-11-17T10:11:20+05:00