August 09, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fauji Fertilizer Bin Qasim Limited (PSX: FFBL) at ‘AA’ for long-term and ‘A-1’ for short term with a stable future outlook, the latest press release issued by VIS showed.
A long-term rating of ‘AA’ signifies high credit quality and strong protection factors. Risk is moderate but may vary slightly from time to time because of economic conditions.
While the Short-term rating of ‘A-1’ denotes high certainty of timely payment, excellent liquidity factors are supported by good fundamental protection factors. Risk factors are minor.
The last rating action was announced on May 31, 2022.
The ratings of FFBL incorporate the strong sponsor profile of Fauji Foundation (FF) which is one of the biggest and most renowned conglomerates of Pakistan with a strategically diversified portfolio of companies.
The ratings also take into account the low business risk profile of the fertilizer sector owing to low-cyclical nature of the industry, increasing significance of food security amidst developing economic situation across the world and consequent enhancement in the strategic importance of the fertilizer sector for the Country.
On the other hand, business risk incorporates the sensitivity of margins to global phosphoric acid prices, rupee-dollar parity and local gas prices.
In addition, rating factor in FFBL’s strategic positioning as the only player of Di-Ammonium Phosphate (DAP) in the domestic fertilizer industry.
The financial risk profile of the company, was affected due to Dip in margins and higher exchange losses resulting in a negative bottom line in 1H23.
Consequently, debt coverages have been affected; the same remains a key rating concern for VIS, going forward.
The liquidity profile has also come under pressure, however, comfort has been drawn from sizeable cash & short-term investments along with a favorable cash conversion cycle, albeit cash holdings continue to decline on a timeline basis.
Further, FFBL’s capitalization profile also reported a decline in the last two financial years.
The gearing indicators have scaled upwards on a timeline owing to a significant rise in borrowings on account of carryover inventory from lower offtake in FY22.
While margins and profitability have been better in 2Q’23, management is expecting a strong second half which should support easing off the pressure on gearing and leverage indicators.
Going forward, improvement in the financial risk profile along with its alignment with the benchmark ranges will be vital for assigned ratings.
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Posted on: 2023-08-09T10:13:07+05:00
