JCR-VIS reaffirms Entity Ratings of Universal Leather (Private) Limited

Karachi, May 04, 2015 (PPI-OT): JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Universal Leather (Pvt.) Limited (ULPL) at ‘BBB+/A-3’ (Triple B Plus/A-Three). Outlook on the medium to long term rating is ‘Stable’. The previous rating action for ULPL was announced on April 9th 2014.

Leather industry in Pakistan is an export-oriented industry contributing ~5.4% of the total export earnings and ~5% of the GDP. During FY14, leather exports grew by 11% in comparison to the preceding year. However, the industry is presently facing a number of challenges including slowdown in the Eurozone, which is a major export destination for Pakistan’s leather industry.

In addition, steep decline in Euro/PKR parity subsequent to year-end 2014 has impacted margins of industry players. Resultantly, there has been an industry-wide consolidation with smaller players exiting the market which will allow more established players to benefit, going forward.

The rating of ULPL derives strength from track record of sponsors who have extensive experience in the leather industry. Given the favourable demand for cow leather, ULPL’s turnover witnessed healthy growth in FY14. Client wise concentration in sales is on the higher side with top ten clients generating around four-fifth of total sales while exports to Eurozone represent two-third of total sales. During 1HFY15, sales were lower than the corresponding period last year on account of depreciation in Euro as well as a decline in quantity sold.

Gross margins witnessed a significant decline in FY14 on account of increase in prices of cow hides. Margins remained under pressure in 1HFY15 due to Euro depreciation; however, management expects pressure on margins to be mitigated in view of recent dip in the cost of hides. Profitability is also projected to be favourably impacted in view of the recent decline in interest rates and oil prices. Borrowing requirements, entirely short term, have increased on a timeline basis; borrowings and trade payables balance is however well matched by stock-in-trade and trade debts.

For more information, contact:
Ms. Sobia Maqbool
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk

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