PACRA Places Entity Ratings of Ghani Chemical Industries Limited on 'Rating Watch'

The ratings recognize Ghani Chemical Industries Limited's (Ghani Chemicals) prominent position in the industrial and medical gases sector. The industry largely possesses an oligopolistic structure, benefiting the players. Recent slowdown in demand for industrial gases from key sectors, in line with the overall economic slowdown, has kept product prices depressed, reflected in a decline in the Company's margins at gross and operating level. Simultaneous increase in working capital needs on account of slow recovery from customers in the health sector led to higher short-term borrowings, which increased finance cost substantially, eroding profitability. Resultantly, cashflows and coverages have remained under pressure, highlighting increased financial risk. Ghani Chemicals’ third 110TPD plant has been set up and is expected to commence commercial operations in 2HFY20. The Company has utilized borrowing to make payment for the new plant, exerting further pressure on already stretched coverages. Smooth functioning of the new plant and timely generation of incremental cashflows remains critical to the Company’s performance. The sponsors have provided support to the Company for expansion and working capital management in the past.
The ratings are dependent on the Company's ability to effectively utilize enhanced capacities. At the same time, management of financial risk, particularly debt coverages, remains important, wherein any further deterioration would have negative implications for the ratings. Sustained market share and, in turn, improved margins would support ratings. Ghani Chemicals' holding company - Ghani Global Holdings Limited - has recently announced that it is planning to divest its stake in the Company, wholly or partially. The final decision regarding this is yet to be announced. Considering the expected change in ownership structure and subsequent possible change in the Company's policies, PACRA has placed the entity ratings of Ghani Gases on ‘Rating Watch'.

About the Entity
Ghani Chemical Industries Limited is an unlisted, public concern, incorporated as a private limited company in Nov-15 and subsequently converted to public status. The Company was established to set up a chemical manufacturing plant in Hattar Economic Zone. However, due to economic and political challenges, the project was postponed. Up till Jul-19, the Company had not started commercial operations. In Jul-19, as part of the Scheme of Compromises, Arrangement and Reconstruction undertaken by the Ghani Global Group of Companies, the manufacturing undertaking of Ghani Global Holdings Limited (formerly “Ghani Gases Limited”), along with all
assets and liabilities, was transferred to Ghani Chemicals. The Company is a subsidiary (~99%) of Ghani Global Holdings Limited which is owned majorly by the Ghani Family (~56%).

Ghani Chemicals is engaged in the manufacturing, sale, and trading of medical and industrial gases and chemicals. The Company's overall capacity stands at ~330 TPD while its product slate consists of Liquid Oxygen, Liquid Nitrogen, Liquid Argon and Calcium Carbide. Ghani Chemicals’ four member board is majorly represented by members of sponsoring family: Mr. Masroor Ahmad Khan is the Chairman of the BoD while Mr. Hafiz Farooq Ahmad holds the office of CEO. They are assisted by a management team with extensive experience and a diversified skillset.