PACRA Assigns Initial Entity Ratings to Master Tiles and Ceramic Industries Limited

The ratings incorporate the company's emergence as a growing entity, evident from consistent expansion in business volumes and ensuing profitability. Simplified ownership structure and induction of second generation in business provides comfort regarding succession. Family dominated governance framework, with no independent director or sub-committees exists. The company has established a strong position in its operating segment through competitive pricing and provision of better quality products to the end consumers. Technological upgrade and installation of new production facilities alongside experienced management team transpire into operational efficiencies. Local demand for tiles on the backdrop of construction boom bodes well for business prospects of the company. Additionally, anti-dumping duties instigated on imports from China are favorable for the domestic Industry. The management intends to capitalize on this growth opportunity through expansion. Currently, operating with two production plants, the company is undergoing installation of a third unit which is expected to be completed by Sep-18. Two other projects are also in the pipeline. Current financial profile reflects a transitionary stretch amidst expansion, hence prudent management of the associated risks are critical for the ratings. The company's financial appetite is supplemented by healthy profits and ample cashflows which provide comfort on the debt servicing ability. Going forward, management intends to rationalize debt mix and stabilize capital structure, as it emerges out of the expansion transit.

The ratings are dependent on the company's aptness to manage its liquidity profile while keeping up with its debt obligations. Prudent working capital strategy is an imperative driver to the ratings. Additionally, materialization of expansion venture into better cashflows and stronger margins would be of significance to the ratings. Meanwhile, margin deterioration, due to competition or excessive borrowings, leading to dilution of coverages will have negative impact on the ratings.

About the Entity
Master Tiles & Ceramic Industries Limited was incorporated in 1992 as an unlisted public company under the Repealed Companies Ordinance, 1984. The company is a family oriented business involved in the manufacture and sale of a wide range of ceramic, porcelain and granite tiles. The Head Office of the company is located at Hafeeza Tufail Building, Gujranwala.

The Board of Governance includes the CEO - Mr. Mehmood Iqbal and his family members. A restructuring in the Board has been made in 4QFY18, prior to which the Board included the CEO and his two brothers. After revision, the Board now includes the CEO - Mr. Mehmood Iqbal, his wife, three sons and one daughter. Mr. Mehmood Iqbal's shareholding constitutes ~84% of the total paid-up capital while his wife holds ~3%, his three sons ~4% each and his daughter ~1%. The CEO is a renowned well-versed tiles industry veteran and the pioneer of the business who laid the foundation of the company.