The Pakistan Credit Rating Agency Limited
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Raniya Tanawar

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PACRA Assigns Initial Ratings to Service Industries Limited

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

Service Industries Limited (SIL) has a twofold profile; one as a hold-co and second as operate-co. As an operate co it is a renowned and well established name in footwear and tyres & tubes industry. The ratings reflect Company's longstanding presence, emanating from strong foothold in its given business segments. The Company have built itself as a prominent player in the market through provision of high-quality products and affirmation of strong brands under its domain. It distinguishes itself by having reasonable level of diversification in its revenue streams coming from tyres & tubes (2 & 3 wheeler and agri tyres) and footwear Industry, this bodes well for the overall Company’s business prospects. Additionally, international presence in its respective niche provides competitive edge to the company's distinct position in the market. Despite COVID-19 outbreak and subsequent lockdown, the Company gained functionality before the other businesses due to its presence in export market. Where pandemic became a hindrance for exports, it was curtailed by rising local demand particularly in tyres segment. The sponsors are keenly focused towards formalized group structure, sustainable business model and eyes for possible expansions in new business avenues. SIL has demonstrated upward trajectory in its business volumes amid stiff competition on a timeline basis. During CY20, revenues witnessed a dip on standalone basis due to the demerger of its Muridke footwear export unit into a newly formed subsidiary; ‘Service Global Footwear Limited’. The business arm at consolidated level is a comfort. Moreover, the company is paving its way to enter 'all steel radial tyres of trucks & buses' market soon. This will be through an investment of $250mln - made in phases over six years horizon - with Chinese investors through a joint venture; ‘Service Long March Tyres (Pvt) Ltd’, established in early 2020 year, sales of which shall be majorly export based as well as to cater the internal demand. This is indeed a significant project. Given the Company’s expansion plans, financial risk profile is reflecting this, which the company holds the potential to manage. As a manufacturing concern, overhead costs are inherent to the business hence keeping the Company’s bottom-line range bound. The Company en routes low-cost debt funded expansion which along with reduction in interest rates will keep the debt profile adequate. Rating also incorporates strong sponsor support augmented by sound governance practices over the years.
The ratings are dependent on sustenance of Company’s leading position in its respective business segments and consistent growth. Profitability in line with business expansion; prudent working capital management and maintenance of coverages amidst expansion is necessitated. Any significant change in the financial risk profile shall remain imperative.

About the Entity
Service Industries Limited is a public listed entity, originally established in 1953. It has three business segments: i) Tyres & Tubes - Agri and 2 & 3 wheelers’ tyres and (ii) Footwear: varieties of leather shoes and iii) Technical Rubber Products, that are manufactured and sold by the company. At present, domestically there are two retail brands in footwear division namely; Shoebox & Klara. It is one of the largest manufacturer of footwear, tyres & tubes (Agri and 2 & 3-wheelers). It is a prominent player under exporters of the country for the last 10 years.
Ownership vests with the sponsor family. The directors, CEO, their spouses and minor children hold ~44.78% shares collectively. Company's Board comprises nine members, with four independent directors, three executive directors and two non-executive directors. Mr. Ahmed Javed is the Chairman of the Board.

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.