PACRA upgrades Entity Ratings of Malik MIJ Chunxing Resources Recycling Company Limited

Malik MIJ Chunxing Resources Recycling Co. Limited (MMC or 'the Company') is a preeminent player in Pakistan’s lead smelting and recycling sector. Its core operations comprise recycling Used Lead Acid Batteries and refining lead bullion. The Company is dedicated to providing the most comprehensive solutions for the effective utilization of Used Lead Acid Batteries (ULAB) across Pakistan and aims to produce 99.994% refined “Green Lead”. The aggregate production capacities of the Company are based on the smelting and refining of lead. The ratings take comfort from the company’s ownership structure as it is a strategic Joint venture among the leading global players including one of China’s largest lead recyclers, Jiangsu Chunxing Resources Recycling Company, having over 4 decades of expertise in the production and recycling of secondary lead and MIJ International, a UAE-based global metals trader with local players having decades of exposure in the local market. MMC’s association with these companies gives it access to the latest recycling technology and global clientele. The local lead recycling business is fragmented and the Company faces competition from a large unorganized segment. The local demand for recycled lead is directly linked with the quantum of energy deficit and auto sector dynamics. During FY23, the production volume of lead acid batteries decreased YoY on the back of increased prices leading to the deterioration of the purchasing power of the consumers that prompted the company to strengthen its export base. MMC has realized hefty synergies in the export segment on the back of its strategic alliance with MIJ, who acts as a quality guarantor (99.994% refined lead) on behalf of MMC for the sale of lead in the international markets mainly to Trafigura- A globally renowned commodity trader. This is also reflected by the hefty increase of ~44% in the export volume during 1HFY24 which resulted in a substantial increase of ~74% in export sales during the period. Moreover, the company’s top line grew by ~21% during FY23 on top of an exponential growth of ~92% during FY22. This trickled down to a healthy bottom line reflecting strong financial performance. The Company's Capacity utilization decreased during FY23 on the back of hurdles in importing raw materials. Going forward, the production is expected to get back on track as the imports have normalized now. MMC has long-term plans to enhance its production capacity in three years. Also, the company has diversified its product portfolio by becoming the only local producer of Calcium Alloy and Antimony Alloy which are used in battery terminals and maintenance-free batteries. The MMC’s board has more of an advisory nature as all members are well experienced and possess technical expertise along with strapping industry-specific experience. The financial risk profile of the Company is considered adequate, with comfortable coverages, cashflows, and working capital cycle. Capital structure is leveraged as borrowings are comprised of only short-term to meet their working capital requirements while maintaining a moderate level of equity.
The ratings depend on upholding sustainable profits while retaining sufficient cash flows and coverages. The company needs to enhance its governance framework and efficacy of the financial transparency. Furthermore, adherence to maintaining its debt metrics at an adequate level is a prerequisite.

About the Entity
MMC is an unlisted public company. It is a J.V between Chunxing RRC (45.82% shareholding), MIJ (18.67%), and Mr. Babar Waheed Malik-CEO and board chairman holds 17.75%. Mr. Saeed Rafiq holds 17.75%. MMC board consists of four non-executives and one executive director.