PACRA Upgrades the Entity Ratings of Service Long March Tyres (Pvt.) Ltd.

Service Long March Tyres (Private) Limited (‘SLM Tyres’ or ‘the Company’) is a private limited concern that specializes in the manufacturing and marketing of radial tyres for trucks & buses. SLM Tyres is the first All-Steel Radial Tyres manufacturing facility in Pakistan incorporated as a result of a joint venture arrangement between Service Industries Limited (SIL), Chaoyang Long March Tyre Company Limited (LM), and Mr. Shabir Ahmad offering a complete transfer of technology from the commencement of the project. The ratings draw comfort from the longstanding position of SIL in Pakistan and LM in China – a leading Chinese manufacturer of all-steel radial tyres. The manufacturing facility is being set up in three phases: Phase 1 with annual tyre production of 0.74mln has been completed. Phase 2, aiming at enhancing the capacity to 1.6mln is in progress, while Phase 3 is planned to expand the capacity to 3.5mln eventually. During 9MFY24, the company achieved capacity utilisation of ~90% (based on the installed capacity of 0.74mln tyres per annum) which is expected to further increase to ~100% by the end of FY24 resulting in an impressive market share of ~50%.. The capacity is likely to ramp up in upcoming years considering the solid expansion plans and rising demand for radial tyres for the trucks & buses segment in Pakistan. Tyre demand is primarily governed by the replacement market followed by automobile OEMs. Intense competition from imported and grey market tyres necessitates high-quality products at affordable prices. SLM Tyres intends to expand its clientele base across the globe by offering high-quality radial tyres and utilising multi-brand names under its sponsorship. The project has been set up in S.I.T.E Area, Nooriabad, Sindh. The Company commenced its commercial production in March 2022. Since then, the Company has been able to build a nationwide marketing and distribution channel to serve the local demand for radial tyres along with the development of a considerable clientele in the export segment seeking benefits from export avenues to multiple countries. During 9MFY24, the company’s topline registered an impressive growth of ~122.1% and clocked in at PKR 26,841mln where ~35% was contributed by exports. Moreover, the ratings also take into account the considerable improvement in the profitability matrix signified by a GP Margin of ~23.5% (FY23, 8.3%) and NP Margin of ~15.7% (FY23, -3.4%). The Financial risk profile is demonstrated by an improved capital cycle, adequate coverages, & a moderately leveraged capital structure comprising both STB and LTB. The company has also availed borrowings at a concessionary rate. Going forward, the funding requirements for the expansion of the project are planned to be met through a mix of debt and internally generated cashflows.
The ratings depend on the Company’s ability to sustain the growth trajectory along with robust financial discipline. Significant developments have been observed in the financial and non-financial performance of the company, which are expected to positively impact the ratings in future.

About the Entity
Service Long March Tyres (Private) Limited was incorporated in Pakistan on January 7th, 2020 as a private limited entity. It is primarily engaged in the manufacturing & sale of all-steel radial tyres for buses and trucks in Pakistan. The Company’s ownership is a split between Chaoyang Long March Tyre Co. Ltd. (~44%), Service Industries Limited (~32.09%), Service Global Footwear Limited (~18.91%), and Mr. Shabir Ahmad (~5.0%). The board of SLM Tyres comprises 9 members, including Mr. Jin Yongsheng (Chairman) and Mr. Omar Saeed (CEO).