The Pakistan Credit Rating Agency Limited
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Muhammad Nadeem Sheikh

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PACRA Maintains Entity Ratings of The General Tyre & Rubber Company of Pakistan Limited

Rating Type Entity
Action Maintain Initial
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect the company's 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 tyres holds a relatively small market share. 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 (German tyre company), which assures adherence to international quality standards. Revenue stream is segmented into OEMs and Replacement Market, wherein OEMs have a higher inclination. However, recent volatility in macroeconomic indicators, including rising interest rates coupled with weakening rupee parity has impacted the growing industry demand. General Tyre is expecting a revival in the same over the near future, particularly in the tractor's tyres segment. This is considered essential. Resultantly, financial risk profile endured a stress in 1HFY19 as indicated from reduced topline (~15%), rising inventory levels on the backdrop of slow pickup of demand, and leveraged capital structure. Overall debt servicing capacity of the company decreased. Cautious management strategies amidst changing industry environment are critical.
The ratings are dependent on the management's ability to uphold the company's leading position in its business segments; Meanwhile, perceptive management strategies to restore healthy performance indicators are imperative.

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 ~22 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.