December 11, 2019: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Matco Foods Limited (MFL) at ‘A-/A-2’ (Single A-Minus/ A-Two).
Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’.
The long-term rating of ‘A-’ signifies good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy.
The short-term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small.
The revision in MFL’s outlook takes into account positive rice sector dynamics, the improved financial performance of MFL including more diversification.
In FY19, Pakistani Basmati rice exports registered double-digit growth on account of increased demand from the EU following the implementation of the pesticide residue regulations.
Further developments in the sector include expected addition of the Saudi Arabian market based on its implementation of pesticide residue regulations like the EU, access to the Qatari market and growing demand from the Chinese market post-Pak-China Free Trade Agreement.
In view of the aforementioned developments, we expect industry growth to remain in double digits over the medium-term horizon.
During FY19, the Company posted 17% growth in topline revenue largely attributable to better value terms, following the depreciation of local currency.
Besides this, induction of new export and local markets for the Rice Glucose Division (RGD) contributed 39% growth in topline, with its proportionate contribution to topline growing from 0.9% in FY18 to 6.4% in FY19.
Going forward, the management has envisaged the segment’s contribution to the topline to increase beyond 10%. As the added sales from the high margin rice glucose division materialize, we expect business margins to improve.
Liquidity profile draws support from more than sufficient coverage of short-term borrowings by way of inventory and receivables and healthy cash flow generation.
Debt servicing ability has slightly declined albeit it is still considered adequate. Leverage indicators depicted improvement and stood below 1.5(x) primarily on account of higher profitability and retention.
Going forward, the sustenance of volumetric growth and margins and maintenance of leverage indicators will remain the most important rating drivers.