The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of H. Sheikh Noor-ud-Din & Sons (Private) Limited | Rating Watch & Negative Outlook

Rating Type Entity
(18-Jan-21 )
(31-Jan-20 )
Action Maintain Downgrade
Long Term BBB BBB
Short Term A2 A2
Outlook Negative Negative
Rating Watch Yes Yes

H. Sheikh Noor-ud-Din & Sons (Private) Limited (The Company) is the manufacturing arm of NRS International which is primarily engaged in manufacturing of relief and health items for international donor agencies. In FY20, due to ongoing ownership related changes, the Company did not bid for new contracts with international relief agencies, which along with Covid-19 disruption led to a decrease in revenue and overall profitability. The Company’s sales of Long Lasting Insecticidal Nets (LLIN) – Major revenue contributor– reluctantly suffered as production facility remained closed for more than a year, which has started again during 2QFY21. Loss of revenue and higher total borrowings pressured the Company’s financial profile. The Company has converted its major short-term borrowings to SBP’s export refinance scheme to save interest expense. The pressure on business profile is expected to persist in near future. The ratings incorporate the Company’s long term association with international donor agencies such as UNHCR, UNICEF, Red Cross and others as a qualified vendor. Strong support from sponsors and other group businesses remains a key rating factor. The ownership structure of the Company has been reorganized after the sponsors reached an agreement. The process is expected to be completed within few months. PACRA has maintained "Rating Watch" and “Negative Outlook” on the ratings on account of observed decline in sales, issues relating to ongoing resolution of ownership and production from LLIN of the Company. PACRA will continue to closely monitor these developments. A rating action may be taken accordingly.
Successful transition and implementation of new ownership structure, improvement in sales volumes through resumption of production of netting business and prudent working capital management remain critical for ratings. Meanwhile, adequate coverages and improvement in governance practices are important. Further reduction in sales and/or deterioration in coverages will impact the ratings negatively.

About the Entity
H. Sheikh Noor-ud-Din & Sons (Private) Limited (The Company) was incorporated in 1979 as a private limited company in Lahore, Pakistan. The Company is equally owned by four brothers and as per the recently signed restructuring agreement, the eldest of four brothers Mr. Farhan Sarwar’s stake in the Company will be bought in equal portions by remaining three brothers. The agreement also clearly lays out a road map for any future division of the Company’s assets in case of a split. The Company manufactures Blankets, Tents, Plastic Items, Solar Lights and Long Lasting Insecticidal Nets.
Overall control rests with a three member board after the exit of Mr. Farhan Sarwar from the board. During FY19, Mr. Farhaj Sarwar has replaced Mr. Farhan Sarwar as the Company’s CEO and chairman. He has over two decades of experience in relief industry. He will be assisted by his two brothers and an experienced management team.

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.