The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Tufail Chemical Industries Limited

Rating Type Entity
(23-Aug-23 )
(23-Aug-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Tufail Chemical Industries Limited (‘TCIL’ or ‘the Company’) is primarily engaged in the production and sale of specialized chemicals in Pakistan. The ratings reflect TCIL’s leading position in domestic manufacturing of surfactants (key raw material for detergents & shampoo industry), strong customer base - mainly MNC’s, & generation of sustained profitability matrix. Pakistan’s reliance on imported chemicals is reducing with time as local manufacturers are injecting investments in lifting import substitution by enhancing production capacities and improving market base. The chemical industry is linked with other sectors of the economy and embodies a large number of products. Thus, key opportunity is generically available to the industry in terms of rising demand from forward linked sectors; including textile, detergent, personal hygiene, etc. However, continuous adoption of advanced technology is indispensable to drive industry’s growth. At this time, fluctuating prices of materials and exchange rate exposure pose challenging business environment. Historically, dumping by various international players has squeezed the margins of the industry. The imposition of anti-dumping for five years on sulphonic acid imports from various countries has helped the Company in ensuring its market share and profitability. The Company has strengthened its distribution network by adding new dealers across the country. As of end 9MFY23, the Company managed to witness slow growth (~7.3%) in topline owing to economic challenges faced related to opening of LCs for the import of core materials during review period as a result of depletion in country's FX reserves. Similarly, TCIL's profitability matrix also reduced which can be attributed to higher operating costs and increase in finance costs. In near future, the Company intends to emphasize on export sales through established links with renowned MNCs to ensure higher sales volume and superior margins. As a whole, Tufail Chemical Industries Limited has achieved operational efficiency, economies of scale, and competitive edge post-merger with its associated concern ‘Tufail Chemical & Surfactants (Pvt.) Limited’. Financial risk profile is characterized by intermediate leveraging, adequate coverages, and reasonable working capital cycle. The assigned ratings drive comfort from demonstrated sponsors’ support and commitment. Further, implementation of good governance and efficient control environment is required to ensure compliance at all levels.
The ratings are dependent on the Company’s ability to sustain its leading position while improving topline growth, profitability margins, and optimal capacity utilization post-merger integration. Better financial profile through effective working capital management, maintaining strong coverages and sufficient cushion to borrow at trade level is critical. Meanwhile, audited financial statements reflecting seamless transition and financial position of the combined entity in the coming time will have a positive impact on future trajectory of ratings.

About the Entity
Tufail Chemical Industries Limited was incorporated in 1993 and commenced operations in 1995 as a public unlisted company. It is a family-owned and family-managed business. Out of total shareholding, Mr. Zubair Tufail along with his family owns 51% stakes, Mr. Pervez Tufail along with his family holds 47% shares. The Company’s board comprises five-members with the dominance of the Tufail Family. Mr. Zubair Tufail is the Chairman of the board whereas three members are executive directors, and the remaining members are spouses of directors.

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.