VIS reaffirms entity ratings of EMCO Industries

December 06, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of EMCO Industries Limited (PSX: EMCO) at ‘A-’ for long-term and ‘A-2’ for short term with a stable future outlook, latest press release issued by VIS showed.

A medium to long-term rating of 'A-' indicates good credit quality; protection factors are adequate.

Whereas, a short-term rating of 'A-2' indicates good certainty of timely payment.

The previous rating action was announced on November 14, 2022.

EMCO Industries Limited is involved in the production and sale of high/low porcelain-based insulators, switchgear, and substation products used in the power sector.

Assigned ratings incorporate the business risk profile of the company, characterized by its strong market presence in the electrical equipment manufacturing industry of Pakistan.

It faces minimal competition from imports and smaller producers in the country.

Moreover, EMCO's recent expansion into high-voltage insulators further enhances its competitive profile as the exclusive local producer in this specialized segment.

The company's clientele includes government institutions and private sector electricity generation firms, providing support to its demand outlook.

Assigned ratings also consider the company's financial profile. EMCO's profitability profile is supported by its leading position in the industry, allowing it the ability to extend favorable pricing.

The company demonstrated resilience in FY23, reporting a notable increase in its topline, despite challenges such as import restrictions and floods.

However, heightened finance costs, with increased discount rates and debt drawdown for business model restructuring (BMR) projects, constrained net margin improvement.

Moreover, due to the higher debt utilization for BMR, the capitalization profile saw marginal deterioration but remained adequate for assigned ratings.

EMCO's liquidity and coverage metrics remain healthy and continue to provide support to ratings.

Going forward, ratings will remain sensitive to the company's ability to achieve its projected plans while maintaining its capitalization, liquidity, and coverage profile commensurate with assigned ratings.

Copyright Mettis Link News