PACRA Assigns Preliminary rating to Ismail Industries Limited | PPSTS | PKR 6bln | TBI

The rise in revenue across segments reflects inflationary pressures, particularly in food product prices. Traditional events like religious and wedding seasons drive notable increases in sales, especially among children and young adults. In terms of age demographics, those up to 20 years old contribute around 65% to food product demand. Factors such as a youthful population, increasing disposable incomes, heightened brand awareness, and diverse flavor introductions fuel growth in the food products sector. The sector's market size, encompassing Biscuits & Crackers, Snacks/Chips, and Confectionery segments, reached approximately PKR 101 billion in FY23, marking a significant 48.2% year-on-year increase.
The ratings reflect Ismail Industries Limited’s ('Ismail Industries' or ‘the Company’) diversified revenue stream generating from the well established brands Candyland, Bisconni, Snackcity, Ismail Nutrition, Ghiza Flour and Astro Films. The company has a promising profits in FY23 amounting PKR 6bln (FY22: PKR 2bln) due to export sales (FY23: PKR ~40bln, FY22: PKR ~15bln). The major reason of this increase in sales is the international projects undertaken by the Company. The total revenue of the company stood at PKR~99bln in FY23 (FY22: PKR ~65bln).Ismail Industries Limited have investments in its subsidiaries and associates. The company holds 78.53% shares of Hudson Pharma (Pvt) Limited. The company also holds 75% of Ismail Resin (Pvt) Limited that deals with manufacturing of PET resin. The associates of Ismail Industries include Bank of Khyber, Plastiflex Films (Pvt) Limited and Innovita Nutrition (Pvt) Limited. Despite inflation and devaluation, a surge can be seen in the margins as net profit margin stood at ~7% in FY23 (FY22: ~5%). The introduction of new product line Giza Flour adds value in the company's profile and profits. However, major borrowings remain from SBP at subsidized rates. The company is also planning to to change it's borrowing mix by issuing a short term PPSTS amounting PKR 6bln, adding up to its already issued PPSTS of PKR 4bln, which may have impact on leveraging position of the company. Current leveraging of the company, excluding debt raised through commercial papers, is ~71%. The Company will use finance raised through the above said debt instrument for their working capital needs. Furthermore, the Company will cap the total debt raised through commercial papers up to the maximum of PKR 10bln, at any given time during the year.

About the Entity
The ratings are dependent on continued revenue growth and maintenance of margins. Prudent management of expansion and investment-related debt in order to meet financial obligations is important. Stringent controls on the Company's debt levels remain imperative for sustaining the ratings. Brand reputation through customer satisfaction remains a crucial parameter for the rating.

About the Instrument
The Company is in the process of issuing a rated, privately placed, unsecured Islamic commercial paper, Ismail Industries Limited | PPSTS | PKR 6bln |TBI of PKR 6bln. Tenor of the instrument will be 6 months. The purpose of the instrument is to meet Working capital requirements. The expected profit rate would be 1MK+25bps. Mark-up will be paid monthly, whereas the principal payment will be made at the maturity of the instrument.