The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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

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

The ratings reflect the realignment of the company’s positioning in the current operating and economic environment of the country. Despite the overall economic slowdown and softening of demand induced by outbreak of COVID-19 with associated lockdown, the company has managed to restrict its top-line loss to 15% in 9MFY20 through focusing on replacement market and rising its market share into this segment. The non-accommodative monetary policy resulted in significant increase of finance cost which suppressed the company’s profitability for the period under review. Currently there is a considerable reduction in policy rate and this will enhance the profitability of General Tyre in near future. Meanwhile the company has undertaken multiple initiatives which will help reduce its operating cost and supplement plant efficiency. The company‘s envisaged fresh business strategy with more focus on replacement market and farm segment has helped the company to maintain its margins. 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 prevailing subdued economic situation, 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. Recent drive of Government to curb smuggling may support company in replacement market. The Company is also in close coordination with new auto players and has started supplying tyres to two 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 ~3.9mln tyres and ~4.4mln 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 ~24 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.