Sayban International

CREDIT RATING REPORT | Dec-24

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
20-Dec-24 BBB- A2 Stable Maintain -
22-Dec-23 BBB- A2 Stable Maintain -
31-Dec-22 BBB- A2 Stable Upgrade -
23-Nov-22 BBB- A3 Positive Maintain -
29-Nov-21 BBB- A3 Stable Upgrade -
About the Entity

Sayban International ("Sayban" or "the Business") was incorporated in 2005 as a partnership concern. Previously, the shareholding vests among Mr. M. Azam Cheema, Mr. Shamsher Hussain, and Mr. Muhammad Tariq. However, recently Mr. Shamsher and Mr. Muhammad Tariq have divested their stake in the Business. Now, the partnership resides between Mr. M. Azam (~98%), and his wife, Mrs. Shabana Mumtaz (~2%). Mr. M. Azam is the key decison maker for the Business and heads as the CEO. He is supported by a team of experienced professionals.

Rating Rationale

The assigned ratings of Sayban International ("Sayban" or "the Business") take into account the extensive experience of the sponsors in the pesticide industry, a strong brand, established industry presence, and wide geographical reach in the domestic market. Lately, the Business witnessed a structural change where the partnership now resides solely among Mr. Azam Cheema's family. Sayban retains its market share despite fragmentation in the crop protection industry. The pesticide sector in Pakistan faced substantial challenges marked by a lack of supportive government policies. Resultantly, the yield of major crops has been impacted. Sayban holds diversified revenue streams from pesticides, plant growth regulators micro-nutrients, fertilizers, and seeds. Though, the top line declined by ~8.76%, yet remains healthy, backed by a robust sales network across the country. Margins and in turn profits remain intact. The Business meets its working capital requirements through a mix of internal cash flows and short-term borrowings. The financial risk profile improved owing to a strong leveraged structure and strong coverages. Going forward, the Business plans to participate in public sector tenders, further strengthening the overall performance.

Key Rating Drivers

The ratings are dependent on the sustained business and financial risk profile of the Business. Meanwhile, improvement in governance practices would be beneficial for the ratings.

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

Sayban International

rating analysis

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Profile
Legal Structure

Sayban International ("Sayban" or "the Business") is an Association of Persons (AOP), established in 2005.

Background

Sayban was established under the umbrella of Auriga Group back in 2005. The Business was established and controlled by five major partners and two minority stake partners. The partners decided to separate businesses in 2015, as a result of which the Sayban group was formed. Three partners moved to Sayban Group and the remaining continued holding a stake in Auriga Group. Sayban was also transferred to Sayban Group. On legal grounds, however, these restructuring changes remained under process since then and the groups continued to operate under the former unchanged partnership deed till Oct'19 when a separation agreement was formalized amongst the partners.

Operations

The industrial complex based at Sayban includes production facilities for Fungiicides, Granules, Herbicides, Insecticides, Plant Growth Regulator PGR (Bio Fertiliser) and Hybrid Seeds. Sayban is doing research & development on different types of bacteria that are environment friendly and is involved in the formulation and sale of Pesticides, manufacturing of PGR (Bio Fertiliser) and sale of hybrid seeds. It has a widespread distribution network nationwide. During the course of time, Sayban’s franchise network has grown to 499 shops which are backed by an experienced & qualified sales team of permanent & contractual personnel.

Ownership
Ownership Structure

Previously, the Business was owned by three partners Mr. Muhammad Azam Cheema, Mr. Shamsher Hussain and Mr. Muhammad Tariq. However, recently Mr. Shamsher and Mr. Tariq has separated from the Business. Currently, Mr. Azam Cheema and his wife Mrs. Shabana Mumtaz owns the Business with ~98% and ~2% stake, respectively.

Stability

The ownership remains stable with majority of stake with Mr. Muhammad Azam Cheema.

Business Acumen

Mr. Muhammad Azam have been associated with the agriculture sector for a long, bearing strong educational backgrounds and deploying valuable services for over three decades.

Financial Strength

Under the umbrella of an agricultural group, Sayban aims for a strategic transformation, unlocking potential opportunities in its financial landscape.

Governance
Board Structure

Sayban currently operates under a partnership structure without a formal board. The Business is managed by two partners who are directly involved in its day-to-day operations.

Members’ Profile

Mr. Muhammad Azam Cheema holds a Master’s in Agriculture and Agronomy and vast professional experience. He is the Chairman & the Chief Executive Officer of Sayban.

Board Effectiveness

Sayban’s oversight function – which is normally the role of the Board – is being exercised by Mr. Azam Cheema. Multiple roles of partners in the management reflect a lack of autonomous direction.

Financial Transparency

Awan & Co. Chartered Accountants are the External Auditors of Sayban. The audit of financial statements for FY24 is in progress.

Management
Organizational Structure

Sayban has a well demarcated organizational structure with defined functions including (i) Operations, (ii) Finance & Accounts, (iii) Administration & HR, (iv) Procurement (v) Development (Vi) Marketing (vii) R & D and (viii) Internal Audit and (ix) Quality Control. All departmental heads reports to the CEO, who then makes pertinent decisions. The CEO is the man at the last mile.

Management Team

Sayban has an experienced management team; a balanced blend of professional people from the industry. The majority of the senior management has been associated with Sayban for a long time. Mr. Aslam Javed, the Group CFO post-restructuring, and Mr. Anees-ur-Rehman Malik (GM Corporate), a finance expert with 25 years of experience in the Pharma, Sugar, Steel, and Pesticides sectors, have played pivotal roles in the Business.

Effectiveness

The absence of formal partner committees and the concentration of reporting lines to the CEO suggest a lack of organizational effectiveness in the Business's structure.

MIS

Sayban has deployed an M/s Genie Clique, a general customized software, particularly for pesticides along with a real-time management base. However, further improvement in the system will bring more efficacy to the business processes.

Control Environment

The existence of an in-house internal audit department reporting directly to the CEO indicates an informal culture within the Business, potentially impacting its control environment.

Business Risk
Industry Dynamics

The agricultural sector plays a pivotal role in Pakistan's economy, contributing ~25% to the GDP and serving as a crucial source of raw materials for various industries. The industry heavily relies on pesticides to enhance crop protection and cultivation practices (Agro Chemicals). The pesticide sector is significantly dependent on imports as ~85-90% of raw material is imported from China. In FY23, the pesticide industry's estimated value stood at ~PKR 103.7bln, marking a YoY increase of ~5.4%. This growth is attributed to the overall expansion of the crops sector and the subsequent rise in demand. Additionally, increased prices have further contributed to this upward trend. In FY23, pesticide imports reached around ~PKR 36bln, reflecting a ~19% YoY increase. Among these imports, insecticides accounted for the majority. The sector's overall leveraging remains adequate with stable coverage ratios. Going forward, the sectors overall outlook is expected to remain stable.

Relative Position

Sayban Group holds a market share of 4% in the pesticide industry and is the pioneer of introducing micro fertilizer, with the brand name "Charger", a unique yet value-adding product in the fertilizer segment of the country.

Revenues

The Business has a diversified product mix including pesticides, fertilizers, micronutrients and seeds. Pesticides generated ~73% of the total sales, followed by micronutrients (~15.5%), seeds (~7.1%) and fertilizers (~4.2%). During FY24, the Business generated revenue of ~PKR 5.7bln (FY23: ~PKR 6.4bln) a decrease of ~8.76% due to decreased demand from farmers as they could not generate good returns on wheat and rice crops.

Margins

During FY24, the effect of decrease in topline trickled down to gross margin and operating margin reported at ~21% (FY23: ~22.1%) and ~9.4% (FY23: ~10.8%), respectively. However, the net profit margin improved to ~5.9% (FY23: ~4.7%) due to a decrease of ~44% in finance costs.

Sustainability

Sayban has increased its liquid pesticide production capacity by 78MT per day to meet anticipated demand from the Agriculture Sector. The Business's management plans to expand the production. Additionally, Sayban is exploring new technical-grade pesticides to enhance scale and profitability.

Financial Risk
Working capital

Sayban’s working capital cycle links to the crop seasons of the country. Optimal inventory management remains the key to a sound working capital system. During FY24 the inventory days deteriorated due to decrease in demand, reported at ~182 days (FY23: ~160 days). The trade receivable days improved to ~32 days (FY23: ~36 days) as the Company is extending credit to only selective customers. On the contrary, trade payable days improved to ~46 days (FY23: ~34 days). The combined impact of inventory days, receivable days and payable days resulted in a net working capital cycle of ~167 days (FY23: ~162 days). Short term trade leverage reduced slightly to ~40% (FY23: ~40.9%), due to decrease in net trade assets.

Coverages

The Business reported a Free Cash Flow from Operations (FCFO) of ~PKR 650mln in FY24 (FY23: ~PKR 842mln), due to increase in taxes paid. However, FCFO/finance cost coverage improved to ~3.9x (FY23: ~2.5x), due to decrease in finance cost.

Capitalization

Sayban decreased its leverage in the capital structure with the leverage ratio standing at ~22.2% (FY23: ~33.5%) due to a decrease in borrowings. Total borrowings of the Business stood at ~PKR 745mln (FY23: ~PKR 1,194mln) whereas shareholders’ equity stood at ~PKR 2,704mln (FY23: ~PKR 2,407mln), an uptick due to increase in unappropriated profits.

 
 

Dec-24

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Sayban International

financial summary

(PKR mln)

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Jun-24
12M		 Jun-23
12M		 Dec-22
12M
A. BALANCE SHEET
1. Non-Current Assets 1,060 1,221 1,133
2. Investments 0 0 0
3. Related Party Exposure 0 0 0
4. Current Assets 4,391 3,792 4,307
a. Inventories 3,094 2,604 2,873
b. Trade Receivables 241 759 488
5. Total Assets 5,451 5,013 5,441
6. Current Liabilities 1,733 1,296 872
a. Trade Payables 710 743 434
7. Borrowings 745 1,194 2,099
8. Related Party Exposure 269 117 231
9. Non-Current Liabilities 0 0 0
10. Net Assets 2,704 2,407 2,239
11. Shareholders' Equity 2,704 2,407 2,239
B. INCOME STATEMENT
1. Sales 5,717 6,266 5,405
a. Cost of Good Sold (4,515) (4,881) (4,268)
2. Gross Profit 1,202 1,385 1,137
a. Operating Expenses (667) (706) (614)
3. Operating Profit 535 679 523
a. Non Operating Income or (Expense) 96 84 92
4. Profit or (Loss) before Interest and Tax 630 763 615
a. Total Finance Cost (221) (392) (196)
b. Taxation (71) (78) (71)
6. Net Income Or (Loss) 338 293 348
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 650 842 532
b. Net Cash from Operating Activities before Working Capital Changes 429 428 324
c. Changes in Working Capital 274 259 (391)
1. Net Cash provided by Operating Activities 703 687 (67)
2. Net Cash (Used in) or Available From Investing Activities 43 (34) (96)
3. Net Cash (Used in) or Available From Financing Activities (474) (655) 228
4. Net Cash generated or (Used) during the period 272 (2) 65
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -8.8% 15.9% 16.5%
b. Gross Profit Margin 21.0% 22.1% 21.0%
c. Net Profit Margin 5.9% 4.7% 6.4%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 16.2% 17.6% 2.6%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 13.2% 12.6% 15.8%
2. Working Capital Management
a. Gross Working Capital (Average Days) 214 196 202
b. Net Working Capital (Average Days) 167 162 177
c. Current Ratio (Current Assets / Current Liabilities) 2.5 2.9 4.9
3. Coverages
a. EBITDA / Finance Cost 4.7 2.8 4.2
b. FCFO / Finance Cost+CMLTB+Excess STB 3.9 2.5 3.2
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 0.2 0.4 0.8
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 22.2% 33.5% 48.7%
b. Interest or Markup Payable (Days) 0.0 0.0 11.5
c. Entity Average Borrowing Rate 16.8% 19.7% 9.4%

Dec-24

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Sayban International

rating scale

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Dec-24

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Sayban International

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))
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  5. Monitoring and Review
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    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))
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    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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