PACRA Upgrades the Entity Ratings of Service Long March Tyres (Private) Limited.

Service Long March Tyres (Private) Limited (‘SLM Tyres’ or ‘the Company’) is a private limited entity, operating under the umbrella of Service Group. It was established through a joint venture between Service Industries Limited (SIL), and Chaoyang Long March Tyre Company Limited (LM), a leading manufacturer of All-Steel Radial tyres in China, ensuring complete transfer of technology from LM China. SLM Tyres has set up Pakistan’s first manufacturing facility for all-steel radial tyres, specializing in the production and marketing of radial tyres for trucks & buses. The assigned ratings reflect the strong ownership structure of SLM Tyres, stemming from the long-established presence and prominent market positions of SIL in Pakistan and LM in China. This is further supported by a robust governance framework and a professional management team with diverse experience and extensive industry knowledge. The rating upgrade highlights the Company’s prominent position in the domestic market where it holds a substantial share of ~32% and growing exports. This not only aids in essential import substitution but also underscores the Company’s considerable export potential. During FY24, SLM Tyres achieved impressive revenue growth of ~ 135.5% year-on-year, and recorded a topline of PKR 37,948mln where exports contributed ~32% to the topline. This growth was achieved through increased volumetric sales driven by optimal capacity utilization. Further capacity expansion is underway to meet rising domestic and international demand. The Company recorded a net profit of PKR 5,360mln, reflecting a healthy net profit margin of around 14%. The Company’s growth prospects are expected to further strengthen after the completion of Phase II of capacity expansion, aiming at enhancing the capacity to ~1.6mln/annum which is currently in progress, whereas Phase III is planned to expand the capacity to ~3.5mln/annum eventually. The local tyre demand is primarily driven by the replacement market followed by Original Equipment Manufacturers (OEMs). Intense competition from imported and grey market tyres necessitates high-quality products at affordable prices. SLM Tyres intends to expand its global clientele by offering high-quality radial tyres and leveraging multiple brand names under its sponsorship. The manufacturing facility is strategically located in S.I.T.E Area, Nooriabad, Sindh to minimise transit costs related to exports. The Company commenced its commercial production in March 2022 and has since successfully established a nationwide marketing and distribution network to serve the local demand for radial tyres along with the development of a considerable clientele in the export segment, capitalizing on opportunities available in various international markets. The Financial risk profile is characterized by an improved capital cycle, strong liquidity, debt coverage, and a moderately leveraged capital structure. The debt portfolio includes both STB and concessional LTB to fund capacity expansion. The funding for the project’s proposed expansion is expected to be sourced through a combination of debt and internally generated cashflows.
The ratings are contingent to the Company’s ability to sustain revenue growth, maintain strong profitability, and uphold financial discipline. The successful execution of its strategic plans will also be crucial to the ratings.

About the Entity
Service Long March Tyres (Pvt.) Ltd. was incorporated in Pakistan in January 2020, as a private limited company. It specializes in the manufacturing and sale of all-steel radial tyres for buses and trucks. The Company’s ownership is divided among LM China (~44%), SIL (~22.09%), Service Global Footwear Ltd. (~18.91%), Service Tyres (Pvt.) Ltd. (~10%), and Mr. Shabir Ahmad (~5%).