The Pakistan Credit Rating Agency Limited
Press Release


Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Service Industries Limited

Rating Type Entity
(24-Sep-22 )
(24-Sep-21 )
Action Maintain Initial
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Service Industries Limited (‘SIL’ or ‘the Company’) maintains twofold profile; one as a holding company and second as an operating company. With clientele base spread across the globe, the group has built itself as an acclaimed player through channeling high-quality products and affirmation of multi-brand strategy under its umbrella. As an operating entity, SIL executes its business activities in footwear and tyres & tubes markets under eminent brand name ‘Servis’. The ratings reflect Company's longstanding presence in given industry environment underpinned by the foundation stone for Servis Group. To manage risk, align financial goals, and ensure growth opportunity; the Company has attained reasonable level of diversification in its revenue streams coming from tyres & tubes manufacturing, technical rubber products, and footwear. Fluctuating prices of raw materials, currency devaluation, policy hike, spike in energy costs, and imports via grey channels squeezed the margins of rubber tyre & tube industry in Pakistan. Despite these challenges, tyre division has been the largest operating segment of SIL. The management intends to materialize the envisaged strategies by capitalizing on the brand image of Servis Tyres and yield added results in near future. Earlier on, higher management made a strategic decision to demerge export-oriented footwear division to carve out the maximum benefits by incorporating 'Service Global Footwear Limited'. SIL gained functionality by rising local demand particularly in footwear segment. The sponsors are keenly focused towards formalized group structure, sustainable business model, and eyes for possible expansions in new business avenues. SIL signified upward trajectory in its business volumes amid stiff competition on a timeline basis. During CY21, revenues witnessed a growth of ~34% on back of better prices and more volume. As a manufacturing concern, overhead costs are inherent to the business, hence keeping the bottom-line range bound. The Company funds its expansion by means of debt availed at concessionary rates, making the debt profile adequate. Besides, the business muscle and financial arm of the group is a comfort. Recently, the group has paved its way to enter 'all steel radial tyres of trucks & buses' market, through establishment of Service Long March Tyres (Pvt.) Ltd., a joint venture project with Chinese partnership. The project shall be completed in a phased manner, with 1st phase being operational since Mar'22. Rating also incorporates strong sponsor support augmented by sound governance practices and methodical internal control system over the years.
The ratings are dependent on sustenance of Company’s leading position in its respective business niches and consistent growth under challenging business environment. Profitability in line with business expansion; prudent working capital management and maintenance of coverages are necessitated. Any significant change in the financial risk profile of SIL shall remain imperative.

About the Entity
Service Industries Limited is a public listed entity, incorporated in 1957. It has three business segments: i) Tyres & Tubes: agri, and 2 & 3wheelers’ tyres, (ii) Footwear: varieties of leather shoes, iii) Technical Rubber Products: manufactured and sold by the Company. Domestically, the Company operates with the brand name of 'Servis' with 125 retail outlets spread across the country. It is one of the largest manufacturers of footwear, tyres & tubes (Agri and 2 & 3-wheelers). The Company is a prominent export player of the country for the last 10 years. Ownership vests with the sponsoring family. The directors, CEO, their spouses and minor children hold ~44.78% stake collectively. The Board comprises nine members, with four independent directors, three executive directors & two non-executive directors. Mr. Ahmed Javed is the Board’s Chairman.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.