The Pakistan Credit Rating Agency Limited
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Ateeb Riaz

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PACRA Maintains Entity Ratings of Interwood Mobel (Private) Limited

Rating Type Entity
(07-Aug-20 )
(09-Aug-19 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Interwood Mobel (Private) Limited’s (Interwood Mobel or 'the Company') strong brand name and established presence in the furniture industry of Pakistan. Over the years, the Company has mitigated risks associated with contractual jobs by focusing on the retail market. It has been successful in evolving its business portfolio and enjoys a healthy mix between retail and corporate sales. The ratings take into account the Company’s automated production process, national footprint and professional management team. The operations of the industry have been impacted due to spread of COVID-19 pandemic and subsequent countrywide lockdown since March 20. Domestic players had to shut down production/shops or remained partially operational during lockdown in 4QFY20 as per Government directives. The demand for retail segment has been impacted due to closure of retail markets in 4QFY20. However, the pressure was mitigated by increase in e-commerce sales and one-off contractual orders during the period, resulting in growth of top-line during FY20 for the Company. The diversified product and segment mix bodes well for the Company in these circumstances. The Company enjoys strong margins on the back of targeting mid-high end market segment. The margins improved during the year due to continuous investment in latest manufacturing technologies resulting in manufacturing efficiencies. These are essential given the competition encountered by the Company from largely unregulated market participants and continuous increase in input costs on the back of frequent rounds of rupee depreciation as the Company imports majority of its raw materials. The financial profile of the Company is characterized by moderately leveraged capital structure, adequate coverages and working capital management. Interwood Mobel's working capital management improved during the year as the asset liability mismatch was reduced. The receivables increased but remain at managebale levels. The measures introduced by SBP in the wake of the COVID-19 pandemic, principal deferment and rate cut of 625bps, will provide relief to cashflows. Governance framework needs strengthening.
The ratings are dependent on the Company’s ability to maintain its leading position in the industry while sustaining top-line and margins in prevailing scenario. Meanwhile, improved financial profile through effective working capital management, maintaining strong coverages and sufficient cushion to borrow at trade level will be critical for ratings.

About the Entity
Interwood Mobel (Private) Limited was founded in 1974 by Mr. Farooq Ahmed Malik. The Company primarily deals in the manufacturing and sale of furniture and allied items. The Company operates fourteen retail outlets concentrated in Karachi (4), Lahore (3), Islamabad (3), Sialkot (1), Peshawar (1), Gujranwala (1) and Rawalpindi (1), with dealer networks established in other cities.

Major shareholding (99.9%) of the Company lies with Farooq Family. Mr. Farooq Ahmed Malik, the founder, and his wife Mrs. Ghazala Farooq own 17% and 16% of the Company, respectively. Each of their sons, Mr. Omar Farooq and Mr. Ali Farooq, own 33% stake in the Company. Remaining shareholding (0.1%) is held by close relatives of the family. The Company is headed by Mr. Omar Farooq, the Chief Executive Officer of the Company. He is ably supported by a professional management team.

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.