PACRA Maintains Entity Ratings of National Foods Limited

The assigned ratings of National Foods Limited (“NFL” or “the Company”) reflect the Company’s dominant market position, operational performance, and ability to diversify and innovate its chosen segment of business. The Company has established a presence since 1970 and strategic diversification into 13 product categories with around 300 SKUs underscores its sustainable financial trajectory. The ratings reflect the growing business of National Foods Limited, supported by sound financial management and strong liquidity. The rating is primarily driven by NFL’s expanding operations, fueled by increased sales volumes in both domestic and international markets, along with the successful introduction of new products. NFL’s focus on creditworthiness and effective use of brand equity signifies adept navigation in both local and global markets. Despite the prevalence of unbranded products in Pakistan posing a credit risk, NFL’s shift towards branded goods suggests credit-positive potential. Globally, NFL’s proactive approach maintains its credit standing amidst intense competition, particularly in the condiment space against Indian entities. NFL’s dedication to fiscal prudence and market adaptability anchors its positive credit profile. The ratings also reflect NFL's robust organizational structure, which effectively provides strategic oversight of its strategic investments. NFL’s strong governance framework further strengthens its credit profile. National Foods operates in the global market via its wholly-owned subsidiary, National Foods DMCC (NFL DMCC), which is based in the UAE. The investment in A1 Cash & Carry, facilitated by National Epicure Inc. (Canada), a wholly-owned subsidiary of NFL DMCC, has enabled the necessary diversification and considerable growth over the years. The Company derives strength from its holding company structure and stable international operations.
National Foods has demonstrated robust growth in its top line, recording an approximate 26% increase during FY24, reaching ~PKR 37.37bln (FY23: PKR 29.6bln), driven by both price adjustments and increased sales volume. However, NFL encountered pressures from escalating manufacturing costs attributable to inflation, resulting in an ~8.5% contraction in its gross profit margin. Additionally, higher finance costs and increased taxation contributed to a significant decline of around 53% in the net profit margin. NFL’s rating affirmation is predicated on the company’s robust franchise value, underscored by a commanding market share and potent brand equity in its principal product segments. The intrinsic worth of the franchise is pivotal, enabling NFL to strategically extend its brand equity into new product categories, which is instrumental in propelling the company towards the fulfillment of its ambitious growth projections set forth by the management. The company’s prudent financial policies, coupled with its agility in adapting to market fluctuations, and adherence to international standards in nutrition, health, wellness, quality and customer satisfaction provide a solid foundation for the continuation of the current rating.
The ratings are dependent on the management’s ability to maintain margins while ensuring self-sufficiency. Diligent management of working capital, along with the preservation of adequate cash flows and coverage ratios, is crucial for maintaining the ratings.

About the Entity
National Foods Limited (NFL) was incorporated as a private limited company in 1970. The company was subsequently converted into a public limited company in 1988. Operations of the company formally commenced in 1996. NFL is registered on Pakistan Stock Exchange and the registered office of the company is located in Karachi. The manufacturing hubs of the company are strategically positioned in Port Qasim, Noori Abad, and M3 Motorway Faisalabad. Leadership is under the stewardship of Mr. Zahid Majeed as Chairman and Mr. Abrar Hasan as CEO, supported by a cadre of seasoned professionals.