Muhammad Atif Chaudhry
PACRA assigns Initial rating to Loads Limited | ICP-1 | Dec-22
|Rating Type||Debt Instrument|
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 3W 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 3W 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.
On the financial profile side, the Company is managing its leveraging on average within ~40% since Jun'19. However, in order to meet the working capital requirements, the Company has issued Islamic Commercial paper (ICP) amounting PKR 500mln. Despite being unsecured, the structure of the ICP is designed in such a way that for timely payment of principal and rentals at maturity, an issuing & paying account (IPA) would be maintained with IP Agent (Bank Islami). To ensure the timely funding of IPA, the Company will issue irrevocable standing instructions to Habib Metro Bank to entrap the throughput of sales to Indus Motor (One of the major customers of Loads) maintained with the Bank and divert the cash receipts to the IPA.
The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remains important. Moreover, upholding of governance framework is vital.
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.
Loads Limited has issued a privately placed, unsecured Islamic Commercial Paper (ICP) of PKR 500mln to finance the company’s working capital requirements. The instrument has a tenor of 6 months and carrying a profit rate of 6MK+200bps. Rental payment and principal will be realized at the time of maturity. The instrument would be unsecured.