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Home Business

Rating agency changed its stance on PREMA

At-Tahur is selling products under brand name Prema

admin-augaf by admin-augaf
June 5, 2021
in Business, Finance, International
Reading Time: 3 mins read
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Rating agency changed its stance on PREMA
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Karachi,  June  04,  2021:  VIS  Credit  Rating  Company  Limited  (VIS)  has  assigned  initial  entity  ratings  of  `A-/A-2′  (A  Minus/A-Two)  to At-Tahur  Limited  (ATL).  The  long-term  rating  of  `A-‘  signifies  good  credit  quality;  protection  factors  are  adequate.  Risk  factors  may vary  with  possible  changes  in  the  economy.  The  short-term  rating  of  `A-2’  denotes  good  certainty  of  timely  payments.  Liquidity  factors and  company  fundamentals  are  considered  sound.  Outlook  on  the  assigned  ratings  is  ‘Stable’.

ATL  is  mainly  involved  in  a  vertically  integrated  dairy  operation  for  production  and  pasteurization  of  milk  and  manufacturing  of  dairy products  under  the  brand  name  ‘Prema’.  Product  portfolio  of  the  company  comprises  pasteurized  milk  with  shelf  life  of  up  to  one week,  plain  and  sweet  yogurt,  fruit  yogurt,  Laban,  flavored  milk,  butter  and  cream  cheese  among  30  assorted  SKUs.  Business  risk profile  is  characterized  by  increasing  intensity  of  competition  in  the  value-added  dairy  due  to  low  barriers  to  entry,  relatively  low  capital requirements,  and  challenging  operating  dynamics.  While  improving  awareness  of  milk  quality  and  popularity  among  high-income group  have  enhanced  the  demand  for  pasteurized  milk  in  the  recent  years,  the  transition  from  loose  milk  continues  to  remain  a  major challenge  mainly  due  to  notable  difference  in  price.  Moreover,  due  to  short  shelf  life  of  key  product,  the  efficient  marketing  and management  of  cold  supply  chain  remains  a  challenging  task,  making  it  difficult  for  the  company  to  build  a  broader  customer  base.

The  ratings  factor  in  sustained  growth  in  revenues  due  to  increase  in  price  and  higher  volumetric  sales  underpinned  by  growing  herd size  of  milk  producing  animals.  Improvement  in  gross  margins  during  9MFY21  was  led  by  economics  of  scale  and  increased  sales contribution  of  high-margin  products  such  as  Laban,  butter,  and  cream  cheese.  In  line  with  the  higher  revenues  and  increased  margins, the  company  exhibited  notable  improvement  in  cash  flows  resulting  in  adequate  debt  coverage  ratios  during  9MFY21. 

While remaining  manageable,  the  adjusted  leverage  indicators  have  increased  steadily  over  the  past  three  years  and  expected  to  increase further  by  the  end  of  ongoing  year  mainly  on  account  of  mobilization  the  SBP’s  Temporary  Economic  Relief  Facility  for  the balancing,  modernization  and  replacement  of  milking  and  milk  processing  machines.  Given  the  facility  is  for  a  tenor  of  10  years  and carries  a  markup  rate  of  5%,  the  debt  service  coverage  is  expected  to  remain  adequate.  However,  continued  growth  in  revenues  and stability  in  profitability  and  cash  flows  in  line  with  the  projections  will  remain  important  from  the  ratings  perspective,  going  forward.

Source: At-Tahur
Tags: AT-TahurATLBuffaloCow MilkDairyPakistanPremaRatingVIS
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