The Pakistan Credit Rating Agency Limited
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Muhammad Harris Ghaffar

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PACRA upgrades Entity Ratings of Malik MIJ Chunxing Resources Recycling Company Limited

Rating Type Entity
(22-Mar-23 )
(15-Sep-22 )
Action Upgrade Maintain
Long Term BBB+ BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Malik MIJ Chunxing Resources Recycling Co. Limited (MMC or 'the Company') ratings reflect a preeminent presence in the organized segment of the Pakistan lead recycling industry. The core operating activities of the Company include Used lead Acid Batteries recycling and bullion lead refining. The Company is dedicated to providing the most comprehensive solutions for the effective utilization of Used Lead Acid Batteries (ULAB) across Pakistan and aims to produce 99.994% refined “Green Lead”. The aggregate production capacities of the Company are based on the smelting and refining of lead. The ratings take comfort as the joint venture company (MMC) has a strategy and technical alliance with local partners and globally renowned companies. One of the sponsoring companies Jiangsu New Chunxing Resource Recycling Co. Ltd has experience of 4 decades in producing and refining secondary lead and possesses patented lead recycling technology. The other sponsor is MIJ International a leading global metal merchant focusing on trading, processing, and production of ferrous and non-ferrous metals. The local lead recycling business is fragmented and the Company faces competition with a large unorganized segment. The local demand for recycled lead is directly linked with the quantum of energy deficit and auto sector dynamics. During FY22, lead acid battery segment has shown an impressive volumetric growth of ~54% (1.14mln Units) as compared to the same period last year (FY21: 0.74mln units). MMC has realized hefty synergies in the export segment on the back of its strategic alliance with MIJ-act as a quality guarantor (99.994% refined lead) on behalf of MMC for the sale of lead in the international markets mainly to Trafigura- A global and renowned commodity trader. This argument also be supported by a ~50% volumetric and 92.4% total stupendous growth in the top line of the Company during FY22. The Company Capacity utilization is gradually ameliorating which translated into improved margins. Furthermore, they have long-term concrete plans to enhance their production capacity in three years. The impact of import restrictions on the Company’s business portfolio is low to moderate, which is based on two factors (i) MMC is a net exporter & (ii) ~75% of industry demand meets through local procurement. The MMC board is more of advisory nature as all members are well experienced and possess technical expertise along with strapping industry-specific experience. The financial risk profile of the Company is considered adequate, with comfortable coverages, cashflows, and stretched working capital cycle depicting industry norms. Capital structure is leveraged as borrowings are comprised of only short-term to meet their working capital requirements while maintaining a moderate level of equity. The Company’s financial performance is not only aligned but transcends its financial projections earlier shared by MMC management providing comfort at the current ratings.
The ratings depend on upheld sustainable profits while retaining sufficient cash flows and coverages. The induction of the SBP category as external auditors is considered imperative for ratings. Furthermore, adherence to maintaining its debt metrics at an adequate level is a prerequisite.

About the Entity
MMC is an unlisted public company. It is a J.V b/w Chunxing (45.82% shareholding), MIJ (18.67%), and Mr. Babar Waheed Malik-CEO and board chairman holds 17.75%. Mr. Saeed Rafiq holds 17.75%. MMC board consists of four non-executives and one-executive director.

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.