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The assigned ratings to IMC reflect its competitive position in local auto manufacturing industry, robust financial profile and sound business risk profile. Ratings also incorporate Company's strong sponsor profile and ongoing efforts to enhance product competitiveness and strengthen operating performance. While profitability levels have depicted noticeable decline, IMC has maintained robust financial profile and low leveraged capital structure despite challenging macroeconomic environment. The ratings take into account IMC's strong balance sheet and abundant liquidity, elements that provide the company with financial flexibility and support its rating.
Automobile sales, which were already on a downward trajectory since the beginning of current fiscal year, have slumped further post March'20 as government imposed nation-wide lockdown to curb Covid-19 pandemic. Sales are expected to depict gradual recovery; quantum of recovery is dependent on duration and breadth of the pandemic. Moreover, reduction in interest rates may help auto-financing pick up pace over the medium-term.
Business risk profile is considered sound given solid franchise, high brand value and strong competitive position in the product segment in which IMC operates. Strong dealer network and declining trend in imported car sales further support the business risk profile whereas significant rupee devaluation is a drag on profitability (although prices have been increased regularly to offset pressure on margins). Cyclicality in sales due to slow down in GDP growth and frequent policy changes are key business risk factors.
IMC's sales mix also benefits from healthy mix of urban and rural segment (where the agricultural economy has been relatively less impacted vis-a-vis large scale manufacturing). While the recent announcement of agriculture package along with higher sugar cane prices (during MY20 season) and aggressive wheat procurement program bodes well for farmer income levels, losses due to locust attacks to crop poses a risk. Long-term demand outlook for automobile sales is considered favourable given low motorization rate (18 vehicles per 1000 people) and projected rise in per capita income.
For more information, contact:Director Compliance and Rating Analytics,VIS Credit Rating Company LimitedVIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,Phase VII, DHA,
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