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The Pakistan Credit Rating Agency Limited
Press Release

Date
10-Oct-19

Analyst
Usama Liaquat
usama.liaquat@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Revises Entity Rating of The General Tyre & Rubber Company of Pakistan Limited

Rating Type Entity
Current
(10-Oct-19)
Previous
(10-Apr-19)
Action Downgrade Maintain
Long Term A A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The adjustment in ratings reflects the realignment of the company’s positioning in the current operating and economic environment of the country. Depreciation of Pak Rupee and interest rate hike, coupled with softening of demand were the key challenges. Despite the overall economic slowdown, the company has managed to restrict its top-line loss to 11% through focusing on replacement market. The rise in cost of production resulted strain on the company’s profitability. To address this, the company has passed on most of the impact of increased cost. This will aid future profitability of General Tyre. Meanwhile the company has undertaken multiple initiatives which will help reduce its operating cost and supplement plant efficiency. The company has also envisaged a fresh business strategy with more focus on replacement market, farm segment and other avenues driving local demand. The company has a strong foothold in its respective industry comprising 4 wheeler tyres for cars, LCVs, tractors, buses and trucks. The company is the sole manufacturer of passenger car radial tyres catering the Original Equipment Manufacturers' (OEMs) market. Two wheeler market, in contrast, displays a broader competitive landscape wherein General Tyre holds a relatively small market share. In last 3-4 years company has invested significantly in modernisation and capacity enhancement of its plant through financing. Due to slow down in economy in current year, the company could not get much benefit of its expansion therefore overall debt servicing capacity of the company decreased. However, the Company is well poised to take benefit from future revival of demand from both OEM and RM market. Monetary easing and stability in exchange rate in future is expected to bode well for the company. Recent drive of Government to curb smuggling may support company in replacement market. The Company is in close coordination with new auto players and has started supplying tyres to one of the new auto players. A well-devised governance framework alongside experienced management team is considered positive for the ratings. Association of General Tyre with Bibojee Services (Private) Limited and Pakistan Kuwait Investment Company Limited is also a consideration. The company's core competence lies in its technical collaboration with Continental AG; Germany (one of the world’s leading tyre manufacturer) which assures adherence to international quality standards. Cautious management strategies amidst changing industry environment are critical.
The ratings are dependent on the company to uphold and improve its business risk vis-à-vis financial risk profile. Revival of the demand driver is crucial. Moreover prudent management of financial affairs remains important.

About the Entity
The General Tyre & Rubber Company of Pakistan Limited was incorporated in 1963 under the Companies Act, 1913 (now Companies Act, 2017) and got listed on the Karachi Stock Exchange in 1982. The company is engaged in the manufacturing and marketing of a complete range of automotive radial tyres. The company currently operates with an annual production capacity of ~3.5mln tyres and ~3.6mln tubes and is the only local manufacturer of passenger car tyres in the country.

The company is majorly owned by two sponsors - Bibojee Services (Pvt) Limited and Pak-Kuwait Investment Company Limited (PKIC), holding ~28% and ~30% shares respectively. The CEO - Mr. Hussain Kuli Khan has an overall experience of ~23 years. An able management team assists him.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.