Mega Conglomerate (Pvt.) Limited

CREDIT RATING REPORT | Dec-24

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
13-Dec-24 AA- A1 Stable Maintain -
14-Dec-23 AA- A1 Stable Maintain -
14-Dec-22 AA- A1 Stable Maintain -
14-Dec-21 AA- A1 Stable Maintain -
14-Dec-20 AA- A1 Stable Maintain -
About the Entity

Mega Conglomerate (Pvt.) Limited was incorporated as a private limited company in 2010 under the repealed Companies Ordinance, 1984 (Companies Act 2017). Mr. Habibullah Khan is the founder and Chairman of Mega Group, which is over 5 decades old. Mr. Khan also holds the position of CEO of the Company and serves as Chairman of the Board. The Company has strategic investments of approx. PKR: 26bln in the associated company - The Hub Power Company Limited (HUBCO) and in two wholly owned subsidiaries—Mega Foods (Pvt.) Ltd., and G4 Mega Pakistan (Pvt.) Ltd. (G4). The Company is owned by Mr. Habibullah Khan (~ 88%) and Mrs. Nusrat Khan (~ 12%). 

Rating Rationale

The ratings reflect the affiliation of Mega Conglomerate (Private) Limited (“the Company”) with the Mega Group, one of Pakistan’s most prominent conglomerates with a strong presence across energy, cement, shipping, logistics, terminals, real estate, oil and gas, auto and food industries. The Company operates as a holding entity, strategically structured to consolidate the Group’s investments in energy, real estate, and food sectors. Its primary revenue source is dividend income from these investments, with a substantial contribution from The Hub Power Company Limited (HUBCO), where it holds a significant 19.4% ownership stake. This steady flow of dividend income, complemented by returns from other portfolio investments, has bolstered the Company’s financial performance—a trend that continued in FY24 and is expected to remain stable. In FY24, the Company took steps to deleverage its balance sheet by replacing commercial long-term debt with an increased subordinated, interest-free loan from an associated undertaking. This move not only released secured assets but also reduced financial costs, improving profitability. The Company retains substantial exposure to related parties. Looking ahead, the Group’s planned foray into the electric vehicle market through Mega Motors may necessitate additional equity injections, potentially increasing leverage at the Group level. Maintaining financial discipline, particularly in managing investment income, will be critical for preserving and enhancing ratings. Nevertheless, the Company’s financial resilience is supported by its ample liquid investments, particularly in Term Finance Certificates (TFCs), and the expectation of sponsor support if required.

Key Rating Drivers

The ratings are closely tied to the performance of the Company’s strategic investments and the successful implementation of its business strategies, supported by a consistent dividend stream from its investment portfolio. Additionally, enhancing the governance framework and resolving the issues highlighted by the external auditor will be essential for sustaining and improving the ratings in the future.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Mega Conglomerate (Pvt.) Limited

rating analysis

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Profile
Background

Mega Conglomerate (Pvt.) Limited ("Mega" or "the Company") was established in Pakistan as a private limited company in 2010 under the Companies Ordinance, 1984 (now the Companies Act, 2017). The Company was established as a “holding company” to own controlling stakes in its subsidiaries, offering centralized strategic oversight while allowing each subsidiary to function independently across various industries. Additionally, Mega hold strategic shares in associates to diversify its portfolio and strengthen financial resilience. This approach helps the Company mitigate risk, generate income through dividends or profit shares, and maintain flexibility for future growth, aligning with its long-term strategic goals. At present, Mega’s investments are concentrated in the energy, real estate, dairy, and fintech sectors.

Structural Analysis

Mega, as the holding company, leads a group comprising subsidiaries and associates. Its wholly owned subsidiaries include Mega Foods (Pvt.) Ltd. (MF), which holds a 56% stake in Haleeb Foods Limited, a producer of dairy and food products, and G4 Mega Pakistan (Pvt.) Ltd., which owns Imperial Developers and Builders (Pvt.) Ltd. (IDBL). IDBL has further acquired Karachi Properties Investment Company (Pvt.) Ltd. (KIP), focused on developing a commercial complex in Karachi, and Hotel Metropole (Pvt.) Ltd. The latter two were acquired on March 27, 2017. Mega’s associates include The Hub Power Company Limited (HUBCO), Pakistan's largest Independent Power Producer (IPP), with ~19% ownership, and PayPro (Pvt.) Ltd., a fintech firm. The strategic investment portfolio of Mega is ~PKR 26bln.

Ownership
Ownership Structure

The Company is owned by Mr. M. Habibullah Khan (88%) and Mrs. Nusrat Khan (12%). Mr. Habibullah Khan is the founder and Chairman of Mega & Forbes Group.

Stability

Mega's ownership structure has remained stable over time, with the majority stake held by the founding sponsors of the Mega & Forbes Group. The shareholders focus on making long-term strategic investments across various sectors through the Company.

Business Acumen

Mega & Forbes Group has interests in the country’s largest container terminal, third largest dairy producer, a cement manufacturer, an integrated shipping company and progressive real estate developer responsible for the only L.E.E.D (Leadership in Energy and Environmental Design) certified commercial buildings in Pakistan. Additionally, the group has presence in energy sector through HUBCO. Under the leadership of Mr. Habibullah Khan, the group has expanded into various sectors and has a proven track record of successfully delivering projects from initial concept through to operational success.

Financial Strength

The Company's financial strength is backed by the Mega & Forbes Group. The sponsors have substantial net worth, enabling them to assist the Company during periods of financial distress. Their equity investments in the Company further highlight their commitment, viability, and financial stability.

Governance
Board Structure

Mega's Board comprises four members, consisting of the sponsoring family. Despite being a private limited company, the small size of the Board and the absence of independent oversight suggest there is room for improvement in its governance framework, particularly given its holding structure.

Members’ Profile

The Board of Mega is chaired by Mr. Habibullah Khan, who brings extensive experience across various sectors of the economy, including shipping, container terminals, energy, construction, and more. He also chairs the Boards of other group companies. Mrs. Nusrat Khan serves on the Board of Qasim International Container Terminal / DP World Karachi, Pakistan's leading terminal. Additionally, Mr. Aly Khan and Ms. Aleeya Khan are also serves as Directors on the Company's Board.

Board Effectiveness

The Board is supported by its sub-committees: the Audit, Investment, and Compensation Committees. The Board Audit Committee, reviews group-level information. The Board Investment Committee, evaluates the Company's investment performance and opportunities. The Compensation Committee, reviews and recommends employee development policies. All these committees are chaired by Mr. M. Habibullah Khan.

Transparency

Mega’s external auditor, Muniff Ziauddin & Co., is on the SBP panel of auditors in Category ‘A’. The firm issued a qualified audit opinion on the FY23 consolidated financials of the Company. The qualification is based on two factors: i) Mega Foods (Pvt.) Limited did not charge impairment against its investment in Dynasel Limited, and ii) Karachi Properties Investment Company (Private) Limited did not carry out a fresh valuation of its investment property. The management believes that the qualification related to Mega Food will be removed in FY24, as the necessary impairment has been recognized. The unconsolidated audit report for FY23, issued by Muniff Ziauddin & Co., was unmodified. The audit for FY24 is currently underway.

Management
Organizational Structure

The Company's organizational structure is strengthened by the Group, with all departmental heads reporting to the Group CEO, Mr. Habibullah Khan. The subsidiaries operate with independent management teams and organizational structures. This setup effectively supports the monitoring of subsidiary performance, as well as the development of strategies and policies for the Group as a whole.

Management Team

Mega's CEO, Mr. M. Habibullah Khan, is the key source of guidance for the Group, bringing over five decades of experience. Mr. Aly Khan, Executive Director, also serves as Chairman of Pioneer Cement Ltd. and Director at Hub Power Company Limited, Haleeb Foods Limited, Qasim International Container Terminal, and is an SECP-certified Director in corporate governance. Mr. Muhammad Aftab Alam, the Group CFO, is a Chartered Accountant with over a decade of experience in financial management.

Management Effectiveness

The management is assisted by Management Committee, comprising CEO, CFO, Head of Investments, Head of HR & Admin, and Head of IT. The Committee met as required and is Chaired by Mr. M. Habibullah Khan.

Control Environment

Mega establishes sound internal control and risk management environment through active monitoring by the Chairman and the Board of Directors. This includes overseeing internal control procedures and ensuring compliance, which helps maintain a balance of power within the organization. The Company also implements performance-based remuneration, aligning incentives with its goals and promoting accountability. These practices enhance the overall effectiveness of the management team, ensuring transparent governance and driving organizational performance. Risk management is primarily handled by the CEO and Head of Investments, who are responsible for setting up investment management frameworks and developing risk management procedures to safeguard the Company's interests.

Investment Strategy
Investment Decision-making

The Company’s investment decisions are taken by the Investment Committee of Mega and Forbes at Group level.

Investment Policy

Currently, Mega adopts a prudent investment strategy by concentrating its investments in a limited number of sectors: Power Generation, Food Products, Real Estate and Fintech. This focused approach not only mitigates risk but also ensures strategic growth within key industries. Additionally, by maintaining exposure to multiple sectors, Mega achieves diversification, which helps balance the potential for growth with the need for stability in its investment portfolio.

Investment Committee Effectiveness

The Company currently adopts a flexible approach to investment guidelines, with management convening meetings as needed to collaboratively make investment decisions.

Business Risk
Diversification

The portfolio has a total investment value of PKR 27bln, with the majority, PKR 24.88bln (96%), invested in power generation through HUBCO, providing stability and long-term returns. The remaining investments are distributed across various sectors: PKR 899mln in Haleeb Foods, PKR 281mln in Real Estate through G4 Mega Pakistan, and PKR 60mln in PayPro, a Fintech. Additionally, the portfolio includes investments in perpetual TFCs worth PKR 1,209mln, ensuring consistent returns. This strategic diversification across industries and asset types helps mitigate risk while promoting growth in key sectors.

Portfolio Assessment

The Company holds two types of investments on its books: Core and Strategic investments. Core investments include two wholly owned subsidiaries: Mega Foods (Pvt.) Ltd., which holds a 56% stake in Haleeb Foods, and G4 Mega Pakistan (Pvt.) Ltd., which has investments in Real Estate, developmental projects. The Company’s Strategic investment includes a 19.48% stake in Hub Power Company Limited (HUBCO), which is the primary income-generating investment for the Company.

Income Assessment

The Company's total investment income for FY24 decreased by ~25% YoY, standing at PKR 4.711bln (FY23: PKR 6.297bln), primarily due to a lower dividend income from HUBCO, which amounted to PKR 4.421bln (FY23: PKR 6.063bln). Additionally, the Company received PKR 290mln as interest income (FY23: PKR 234mln) from non-core investments in unlisted TFCs. Going forward, the Company expects to receive dividend income from its portfolio, including Mega Foods and HUBCO.

Financial Risk
Coverages

During FY24, the coverage ratio improved to 3.6x (FY23: 3.3x), primarily due to a decrease in finance costs incurred during the period. Dividend income from HUBCO has provided the much-needed support to the Company’s coverages. Similarly, the Company’s debt coverage ratio also improved, reaching 3.0x in FY24 (FY23: 1.6x). Going forward, HUBCO, being equal joint venture partner with the Company, plans to invest in electric vehicles through Mega Motors. Additionally, the early termination of its Power Purchase Agreement for its base plant, under the power sector reforms introduced by the Prime Minister of Pakistan, may lead to a reduction in its dividend stream. However, HUBCO's overall income generation capacity is expected to remain strong, as it continues to operate other energy projects within its portfolio.

Capital Structure

During FY24, the Company issued share capital of PKR 3bln, increasing the ordinary share capital from PKR 1.2bln to PKR 4.3bln. Equity was further strengthened by a recovery from an unappropriated loss of PKR 1.6bln in June 2022 to an unappropriated profit of PKR 5.7bln in June 2024. Compared to FY23, total borrowings stood at PKR 17.2bln (FY23: PKR 21bln), primarily consisting of related party exposure. During FY24, the Company successfully repaid its long-term facilities, resulting in a decrease in the leveraging ratio to 40% in June 2024, compared to 77.5% in June 2023. However, going forward, the expected debt to be raised to fund investments into the venture of Mega's investment portfolio may lead to an increase in leveraging.

Consolidated Position

Mega & Forbes is the Group’s main Holding Company, Mega & Forbes' consolidated revenue stood at PKR 68bln with a net profit of PKR 42bln during FY24. The consolidated equity base stood at PKR 104bln as at FY24.

 
 

Dec-24

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Mega Conglomerate (Pvt.) Limited

financial summary

(PKR mln)

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Sep-24
3M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
Management Management Audited Audited
A. BALANCE SHEET
1. Investments 26,150 26,150 26,090 26,090
2. Related Party Investments 1,253 1,249 1,301 1,281
3. Non-Current Assets 0 0 0 0
4. Current Assets 221 228 176 116
5. Total Assets 27,624 27,627 27,567 27,487
6. Current Liabilities 46 362 720 368
7. Borrowings 1,247 1,843 7,918 12,921
8. Related Party Exposure 16,072 15,390 12,956 13,384
9. Non-Current Liabilities 233 0 2,272 1,213
10. Net Assets 10,025 10,032 3,701 (399)
11. Shareholders' Equity 10,025 10,032 3,701 (399)
B. INCOME STATEMENT
1. Total Investment Income 67 4,711 6,297 3,045
a. Cost of Investments (73) (1,213) (1,739) (1,582)
2. Net Investment Income (7) 3,498 4,558 1,463
a. Other Income 0 0 0 0
b. Operating Expenses (1) (7) (4) (3)
4. Profit or (Loss) before Interest and Tax (7) 3,490 4,554 1,460
a. Taxation 0 (332) (455) (276)
6. Net Income Or (Loss) (7) 3,159 4,100 1,184
C. CASH FLOW STATEMENT
a. Total Cash Flow 56 4,328 5,804 2,803
b. Net Cash from Operating Activities before Working Capital Changes (333) 2,757 4,418 1,262
c. Changes in Working Capital (3) 51 (23) 282
1. Net Cash (Used in) or Available From Investing Activities (336) 2,808 4,395 1,544
2. Net increase (decrease) in long term borrowings 0 (60) 0 0
3. Net Cash (Used in) or Available From Financing Activities 320 (2,740) (4,373) (1,535)
4. Net Cash generated or (Used) during the period (16) 8 22 9
D. RATIO ANALYSIS
1. Performance
a. Asset Concentration (Market Value of Largest Investment / Market Value of Equity Investments) 92.5% 94.4% 91.1% 93.6%
b. Core Investments / Market Value of Equity Investments 3.6% 2.7% 4.4% 6.4%
c. Marketable Investments / Total Investments at Market Value 77.2% 58.2% 92.6% 132.3%
2. Coverages
a. TCF / Finance Cost 0.8 3.6 3.3 1.8
b. TCF / Finance Cost + CMLTB 0.5 3.0 1.6 0.9
c. Loan to Value (Funding / Market Value of Equity Investments ) 0.2 0.2 0.5 1.0
3. Capital Structure (Total Debt/Total Debt+Equity)
a. Leveraging [Funding / (Funding + Shareholders' Equity] 37.6% 39.8% 77.5% 102.3%
b. (Funding + Off Balance Sheet Exposure) / Shareholders' Equity 60.3% 66.2% 343.6% -4446.1%
E. NOTES
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Dec-24

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Mega Conglomerate (Pvt.) Limited

rating scale

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Dec-24

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Mega Conglomerate (Pvt.) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
    5. PACRA maintains the principle of integrity in seeking rating business. (Chapter III; 11-A-(u))
    6. PACRA promptly investigates in the event of misconduct or a breach of the policies, procedures, and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence, along with suitable punitive action against the responsible employee(s). (Chapter III; 11-B-(m))
  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
    5. PACRA ensures that the analysts or any of their family members shall not buy, sell, or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause, however, does not apply to investments in securities through collective investment schemes. (Chapter III; 12-2-(l))
    6. PACRA has established policies and procedures governing investments and trading in securities by its employees and for monitoring the same to prevent insider trading, market manipulation, or any other market abuse. (Chapter III; 11-B-(g))
  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
  7. Proprietary Information
    1. All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or otherwise reproduced, stored, or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent.

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