The Pakistan Credit Rating Agency Limited
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Kanwal Ejaz

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PACRA Maintains Entity Ratings of Honda Centre (Pvt.) Limited

Rating Type Entity
(27-Jul-23 )
(29-Jul-22 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings take comfort from Honda Centre's dealership status with Honda Atlas Cars Pakistan Limited–owned by Atlas Group and Honda Motor Company Limited, Japan. Honda Centre (Pvt) Limited is among the largest authorized 3S dealership for Honda Atlas Cars Pakistan Limited in Pakistan. Honda Centre has been in the auto dealership industry for over a decade now and has captured adequate market share. FY23 was a challenging year for the automobile industry, the sector is heavily dependent on CKD Kits, and import restrictions due to depleting foreign exchange reserves created essential raw material shortages. This situation led to frequent plant shutdowns and non-production periods, observed by all OEMs. Furthermore, massive rupee depreciation coupled with high inflation and rising interest rates contracted the demand. PAMA (Pakistan Automotive Manufacturers Association) latest stats (FY23) revealed a significant drop in automobile sales volumes, where passenger cars sales recorded at ~96,812 units as compared to ~234,180 units in FY22 depicting a decline of ~59%. The company’s revenue is derived from sale of vehicles & spare parts, commission income, and after-sale services. During 9MFY23 sales revenue of the company stood at ~ PKR 771mln and margins showed some dilution at all levels. The company has long-term contracts with multiple institutional customers for periodic maintenance and after-sales services which benefited the company to sustain the topline. The sponsors have a good understanding of prevailing industry challenges and they have implemented appropriate strategies to minimize the downside risks. The operations of the company are benefited by a strong system of internal controls and compliance is also being ensured by Honda Atlas (OEM). Furthermore, the governance structure may be further strengthened by including independent oversight, internal audit function, and adopting the practice of preparing quarterly accounts. The financial risk profile of the company appears adequate with comfortable coverages, working capital cycle, and cashflows. Capital structure is leveraged where borrowings are mainly comprised of short-term for working capital management.
The ratings are dependent on management’s ability to sustain its business profile, with sustainable growth in revenues, margins, and amicable management of trade receivables. Good corporate governance practice is considered pivotal for a growing business concern.

About the Entity
Honda Centre was incorporated in 2007 as a private limited company. It was incorporated to function as an authorized 3S (Sales, Services, and Spare Parts) dealership for Honda Atlas Cars Pakistan Limited. The dealership is owned by the three brothers from the sponsoring family. Mr. Yasir Raza is the CEO and Mr. Taimur Raza and Mr. Hassan Raza are the executive directors. The sponsoring family has other successful running businesses in the oil and gas sector as well which is named 'EGAS Private Limited'.

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.