Muhammad Noor Ul Haq
PACRA Maintains Entity Ratings of Loads Limited | Rating Watch & Negative Outlook
The assigned ratings of Loads Limited reflect the niche industry positioning in the auto parts industry. With a long-lived presence of up to four decades in the automotive industry, the Company has established a considerable forte in the domestic market along with a committed client base. Pakistan’s automotive & allied industry witnessed a dip owing to economic instability, persistent inflationary pressures and policy rates hikes. The rising input costs of imported raw materials suppressed the profitability of all players in the automotive segment. The Company employs its specific business model i.e., working through subsidiaries catering to current product suite. Loads Limited has segment concentration risk with 4W accessories contributing majority to total sales. Though, the Company has a long association with reputed OEMs, the revenue base remains concentrated with top two customers contributing to ~81% to its operating revenue and a single customer contributing to ~54% in FY22. The high dependence on one of the OEMs exposes the Company to fluctuation in 4W sales and profitability dependent on the key customer's growth plans. Moreover, Loads Limited is gearing towards further diversification and is in the process of completing Alloy Wheels plant under Hi-Tech Alloy Wheels Limited. The ramp-up of operations and the ability to derive the envisaged benefits will remain crucial from the credit perspective.
The “Negative Outlook” reflects the continued muted performance in Loads Limited revenues and deterioration in financial risk profile. The Company's profitability has been significantly impacted during the recent quarter on account of muted demand. Company's margins have taken a hit at the gross level due to increase in policy rate and drop in OEMs volume. Company faces the financial challenge by virtue of the investment done in Hi-Tech Alloy Wheels Limited as the project is unable to achieve its COD. Not only the Company is unable to yield any return from the investment but also is bearing an opportunity cost at entrenched investment.
The ratings are dependent on the management's ability to sustain the financial risk profile while embarking into the new business venture. Company's ability to achieve projected revenue growth in key business segments and sustain profitability matrix amidst challenging operating environment is fundamental.
Loads Limited was established in 1979 as a private limited company. The company was converted to a public unlisted company in 1993 and was listed on Pakistan Stock Exchange in 2016. The company has a seven-member board of directors. The board includes three Non-Executive Directors including the Chairman, Mr. Syed Shahid Ali. The CEO - Mr. Munir K. Bana, a Chartered Accountant, has been associated with the company for 26 years who is assisted by team of experienced professionals.