VIS reaffirms entity ratings of Hi-Tech Lubricants

December 31, 2024 (MLN): VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Hi-Tech Lubricants Limited (PSX: HTL) at ‘A-/A2’ (Single A minus/A Two), the latest press release issued by VIS showed.

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

Risk factors may vary with possible changes in the economy.

Short-term rating of 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors.

Outlook on the assigned ratings remains ‘Stable’.

Previous ratings action was announced on January 18, 2024.

HTL mainly operates in Pakistan’s lubricants sector through ZIC-branded products sourced from SK Enmove Co., Ltd., a South Korean supplier.

Established as the exclusive distributor of ZIC lubricants in Pakistan, HTL has expanded its presence over the years, supplying synthetic and semi-synthetic lubricants for automotive and industrial uses.

The Company distributes products domestically via handlers and distributors.

Its subsidiary, Hi-Tech Blending (Private) Limited, began blending operations in 2016, producing lubricants, bottles, and caps locally.

HTL also entered polymer production and vehicle maintenance services, operating 13 centers since 2017, with plans for 22 centers by 2025.

Entering the petroleum sector in 2020, HTL now operates 55 fuel stations, with a 98% revenue increase in Oil Marketing Company operations due to network expansion.

Assigned ratings reflect the business risk profile of the Company, influenced by its operations in the oil marketing and lubricant sectors.

The oil marketing sector exhibits a high-risk profile due to frequently reviewed regulated pricing, macroeconomic volatility, and intense market competition.

In the lubricant sector, the risk profile is assessed as medium, reflecting stable demand drivers offset by vulnerabilities to economic fluctuations and raw material costs.

Assigned ratings also consider the financial risk profile of the Company, which reflects profitability trends characterized by a decline in gross profit margins due to the lower-margin nature of oil marketing products and increased costs in the lubricant segment in FY23.

Some recovery is noted in 1QFY25 with local blending initiatives.

At the same time, net margins were supported by higher dividend income.

The capitalization profile remained manageable, with mixed trends in gearing and leverage metrics influenced by shifts between borrowings and payables for working capital management.

Liquidity constraints persist due to subsidiary financial support, though the current ratio has shown marginal improvement.

Coverage metrics recovered from a prior decline, supported by enhanced profitability and higher funds from operations.

Going forward, ratings will remain sensitive to the Company's ability to sustain improvements in gross margins in the recent quarter through initiatives such as local blending of lubricants and achievement of other operational efficiencies.

Moreover, maintaining a stable liquidity profile, improved coverage metrics will also remain important considerations for ratings.

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