VIS upgrades Macter International’s short-term rating to ‘A-1’

August 05, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has upgraded the short-term entity ratings of Macter International Limited (PSX: MACTER) from ‘A-2’ to ‘A-1’.

Meanwhile, the long-term rating is sustained at ‘A’, reflecting good credit quality; protection factors are strong. Risk is modest but may vary with the possible changes in the economy.

To note, the previous rating action was announced on June 13, 2023.

The assigned rating factor in the business risk profile of the pharmaceutical sector is characterized by stable demand and low economic sensitivity.

Factors such as population growth, high disease incidence, emergence of new diseases, and inadequate hygiene practices are expected to sustain the demand for pharmaceutical products in the country.

However, the industry faces profitability challenges stemming from a stringent regulatory environment with restrictions on price increases.

The reliance on imported raw materials, constituting 70-80% of costs, further exposes the industry to exchange rate risks. However, the government's recent approval to deregulate prices for Non –essential drugs bodes well for pharmaceutical companies.

The company's topline growth in FY23 saw a significant 25% increase, driven by new product launches and promotional campaigns.

However, sales slowed in 9MFY24 due to reduced tender business, as the Company intentionally scaled down this segment to mitigate rising costs.

The company's strategic plan includes an investment to upgrade its plant for export compliance, expected to improve margins.

Nevertheless, inflationary pressures, currency devaluation, and higher operational costs continue to keep margins under pressure. Liquidity, however, remains strong evidenced by a robust current ratio and short-term borrowing coverage.

The working capital cycle has also shown significant improvement over time. The capitalization profile is sound with low gearing and leverage levels.

Going forward, maintenance of liquidity and capitalization profile while improving margins will remain important for ratings.

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