PACRA Maintains Entity Ratings of Tufail Chemical Industries Limited | Assigns 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) and strong customer base - mainly MNCs. In FY24, the Tufail family undertook a restructuring of the group, and the two brothers divided the family business. Zubair family and Pervaiz family will now lead separate entities: TCIL and TMIL (Tufail Multichem Industries Pvt. Limited), respectively. The restructuring process is finalized, and court orders regarding the division have been received, and will officially take effect soon. Consequently, after de-merger TCIL’s current annual production capacity stands at ~64,788 MT for LABSA, ~42,340 MT for SLS/SLES, and ~48,363 MT for textile chemicals. In the local chemical market, manufacturers are increasingly investing in capacity expansion and market development, leading to a reduction in reliance on imported chemicals. The chemical industry plays a crucial role in supporting forward-linked sectors, such as textiles, detergents, and personal hygiene. Growing demand from these sectors presents a significant opportunity for chemical manufacturers. However, the availability of cheaper raw materials through grey channels creates price competition among industry players. During the review period, the company faced several challenges, primarily due to difficulties in establishing L/Cs for importing key raw materials, delays in the procurement process caused by flooding in the UAE, and the ongoing restructuring within the group. Following the de-merger, the company’s sales decreased to PKR ~6.8bln during 9MFY24 (FY23: ~17bln). However, gross margins remained stable at ~14%, and both operating and net profits showed modest improvement due to better cost control and a reduction in finance costs. The company's Board consists primarily of close family members, indicating a lack of independent oversight and highlighting an area for potential improvement. Similarly, establishing a formal internal audit department would further enhance the control environment. Going forward, the company plans to invest in infrastructure, solar energy, plant efficiency, and combining it with the addition of a new product through a mix of equity and debt. Financial risk profile is characterized by modest coverages and cashflows. Capital structure is moderately leveraged, where borrowings are comprised of short-term working capital management.
The ratings are dependent on the Company’s ability to sustain its market position. Furthermore, growth in revenues, and improvement in margins, as depicted in financial projections will remain imperative. Moreover, audited financial statements reflecting a seamless transition and a standalone financial position of the entity will remain important.

About the Entity
Tufail Chemical Industries Limited was incorporated in 1993 and commenced operations in 1995 as a public unlisted company. Tufail Chemical is a family-owned and managed business. After a de-merger, the total shareholding of TCIL will remain in the Zubair family. As per the proposed shareholding, 45.1% will be transferred to Mr. Zubair Farid Tufail, 25.5% to Mr. Salman Tufail, and 9.8% to Mrs. Ghazala Zubair, Ms. Fariha Nasir, and Syed Azfar Ali Nasir each. However, the official orders are in process. Mr. Zubair Tufail is the Chairman of the board whereas all other members are close family members of the chairman.