Credit Rating Report

GQ Ball Pen Industries Limited

Particulars GQ Ball Pen Industries Limited BDT 25.0 million aggregate Funded Limit BDT 35.0 million aggregate Non-funded Limit* Outlook Ratings A1 ST-2 ST-2 Stable Remarks Please see Appendix-1 for details

ST-Short Term * LTR Limit of BDT 30.0 million considered as Inner Limit of BDT 35.0 million L/C Limit (non-funded).

Date of Rating: 26 September 2012 Validity: The Entity and Long Term ratings are valid up to 30 June 2013 and the Short Term ratings are valid up to limit expiry date of respective credit facilities or 30 June 2013 whichever is earlier. Rating Based on: Audited financial statements up to 31 December 2011; Half-yearly Audited financial statement up to 30 June 2012; bank liability position as on 30 June 2012, and other relevant quantitative as well as qualitative information up to the date of rating declaration. Methodology: CRAB Corporate Rating Methodology (www.crab.com.bd) Analysts: Nafiz Iftekhar nafiz@crab.com.bd Hussain Md. Yasin yasin@crab.com.bd major product covers all the attributes from premium to economic. GQ Ball Pen captures a mentionable share in market (being a pioneer among local manufacturer) besides the imported ball pen. The annual capacity of the ball pen unit is 515,250 (gross) and plastic unit has annual capacity of 1,369,375 (gross). Ball pen factory is located at BSCIC Industrial Estate, Jessore and Plastic unit is
Financial Hig hlig hts Ye ar e nded o n Dece mbe r 31 (Mil. BDT ) Net Sales EBITDA EBITDA Margin (%) Net Profit Margin (%) Return on Average Assets (%) Quick Ratio () Cash Conversion Cycle (Days) Debt to Equity () Borrowed Fund to EBITDA () Operating Profit/ Interest (EBITDA-CAPEX)/Interest Cash Flow from Operation Free Cash Flow Shareholders Equity Total Borrowed Fund 2 011 305.2 83.4 27.3 18.4 5.6 1.1 161 0.1 1.2 4.5 19.4 87.7 61.9 714.2 72.6 2 010 295.0 60.7 20.6 11.3 3.8 1.2 167 0.1 0.9 6.6 4.8 68.8 10.6 662.5 65.2 2 009 306.0 74.8 24.4 15.6 6.0 1.7 140 0.1 1.1 9.8 23.7 53.0 27.9 602.7 14.3

located at Chhoighoria, Khagan, Savar. As of 30 June 2012, total Shareholders Capital stood at BDT 1,932.3 million (including revaluation surplus of BDT 1,239.2 million).

R AT IONALE
Credit Rating Agency of Bangladesh Limited (CRAB) has assigned A1 (Pronounced Single A One) rating in the Long Term to GQ Ball Pen Industries Ltd. (hereafter referred to as the Company or GQBPIL). CRAB has also assigned ST-2 rating to BDT 25.0 million aggregate funded limit and BDT 35.0 million aggregate non-funded limit. The business risk profile of the Company may be adversely impacted by increasing competition in market, cost structure due to raw material price volatility and adverse movements in foreign exchange (for-ex) rates and frequent obsolescence or modification of design of the product. The assigned ratings considered the intense competition in various sales zones of the Company, market positioning as follower (formerly leader) in the industry and reflected lack of concentration in frequent design modification to grasp various market niches as negative factors. Prospective impact on revenue due to new BMRE project and construction of a Commercial Building (which may finance through offering right share)

P ROFILE
GQ Ball Pen Industries Ltd. commenced its commercial operation in 1982 with an aim to manufacture Ball Pen of various design & quality under the brand GQ & ECONO and now the Company has diversified product range like- comb, disposable glass, plate, bowl, burger box, lunch box etc. Maladesh International (Pvt.) Ltd. subsidiary of the same Company produces mosquito coil under the brand name of Elephant King & Advanced Boost. GQBPIL is pioneer of ball pen in the country, plays a major role in highly competitive market as its

CRAB I CRAB Ratings on Corporate Credit Digest I 1 January 2013

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CRAB Rating Report

Plastic\Ball Pen

GQ Ball Pen Industries Limited

also taken into consideration while assigning the rating. The assigned ratings derived strength from long experience in this business, flexible leverage due to strong accumulated capital base, strong coverage position, and reserve, diversification of business line and management expectation to expand capacity of existing business and construct commercial building for enhanced revenue have been considered as positive factors. Management planned to expand its existing facilities of ball pen as well as plastic unit, further more the process for construction of a multi-storied commercial building on land measuring 11 Katha 2 Chattak at Uttara Model Town. Total project cost is estimated to be BDT 536.8 million of which BMRE of existing project will cost BDT 249.5 million and Construction of multi-storied building will cost BDT 287.3 million. Total project will finance through fund from right issuance of BDT 388.2 million and bank loan of BDT 148.6 million. BMRE project will enhance 49% capacity in Ball pen unit and 38% capacity in Plastic unit. Aggregate revenue is expected to enhance by 33% in initial year and by 10% in subsequent years. Management expects BMRE project will complete within one and half year and construction of commercial building will take three years to complete after receiving of right issue fund. These two projects are exposed to construction risk, implementation risk and cost overrun if there is delay in completion. Fragmented nature of the industry along with frequent modification in design of products is major risk in this line of business. Continual expansion of capacity along with strong marketing and distribution network may help the Company to rank as a top player in the industry. Sales were stable in last few years which impact operational profit of the Company. CAGR of revenue calculated only 7.3% during 2007-2011. Profit from core business was reported 9% (relative to total net profit before tax) in 2012 stated in half-yearly audited financial statement which was 13% in 2011. Profit from other income stood at 91% (relative to total net profit before tax) in 2012 which was 87% in 2011. Revaluation of the assets enhanced the reserve (BDT 1,363.5 in 2012 vs BDT 125.6 in 2011) and subsequently fixed asset value (BDT 1,426.2 in 2012 vs BDT 182.4 in 2011) of the Company. GQBPIL largely depended on internal fund rather than external which eventually resulted 0.1x D/E ratio in last three years during 2009-2001. Increasing trend of (positive) operating cash flow (BDT87.7 million in 2011 vs BDT 68.8 million in 2010) revealed well managed working capital and low credit risk profile of the Company. The assigned ratings also reflect process management of the Company, sales realization practice, and marketing strategy.

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GQ Ball Pen Industries Limited

CRAB RATING SCALES AND DEFINITIONS Long Term (Corporate) Long Term Rating AAA Triple A AA1, AA2, AA3* Double A Definition Companies rated in this category have extremely strong capacity to meet financial commitments. These companies are judged to be of the highest quality, with minimal credit risk. Companies rated in this category have very strong capacity to meet financial commitments. These companies are judged to be of very high quality, subject to very low credit risk. Companies rated in this category have strong capacity to meet financial commitments, but are susceptible to the adverse effects of changes in circumstances and economic conditions. These companies are judged to be of high quality, subject to low credit risk. Companies rated in this category have adequate capacity to meet financial commitments BBB1, BBB2, BBB3 Triple B but more susceptible to adverse economic conditions or changing circumstances. These companies are subject to moderate credit risk. Such companies possess certain speculative characteristics. Companies rated in this category BB1, BB2, BB3 Double B B1, B2, B3 Single B CCC1, CCC2, CCC3 Triple C CC Double C have inadequate capacity to meet financial commitments. Have major ongoing uncertainties and exposure to adverse business, financial, or economic conditions. These companies have speculative elements, subject to substantial credit risk. Companies rated in this category have weak capacity to meet financial commitments. These companies have speculative elements, subject to high credit risk. Companies rated in this category have very weak capacity to meet financial obligations. These companies have very weak standing and are subject to very high credit risk. Companies rated in this category have extremely weak capacity to meet financial obligations. These companies are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. Companies rated in this category are highly vulnerable to non-payment, have payment arrearages allowed by the terms of the documents, or subject of bankruptcy petition, but have not experienced a payment default. Payments may have been suspended in accordance with the instrument's terms. These companies are typically in default, with little prospect for recovery of principal or interest. D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized.

A1, A2, A3 Single A

C Single C

D (Default)

*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC . The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

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GQ Ball Pen Industries Limited

LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS (All loans/facilities with original maturity exceeding one year)
RATINGS AAA (Lr) (Triple A) Highest Safety AA (Lr)* (Double A) High Safety A (Lr) Adequate Safety BBB (Lr) (Triple B) Moderate Safety BB (Lr) (Double B) Inadequate Safety B (Lr) High Risk CCC (Lr) Very High Risk CC (Lr) Extremely High Risk C (Lr) Near to Default D (Lr) Default DEFINITION Loans/facilities rated AAA (Lr) are judged to offer the highest degree of safety, with regard to timely payment of financial obligations. Any adverse changes in circumstances are unlikely to affect the payments on the loan facility. Loans/facilities rated AA (Lr) are judged to offer a high degree of safety, with regard to timely payment of financial obligations. They differ only marginally in safety from AAA (Lr) rated facilities. Loan/facilities rated A (Lr) are judged to offer an adequate degree of safety, with regard to timely payment of financial obligations. However, changes in circumstances can adversely affect such issues more than those in the higher rating categories. Loans/facilities rated BBB (Lr) are judged to offer moderate safety, with regard to timely payment of financial obligations for the present; however, changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for issues in higher rating categories. Loans/facilities rated BB (Lr) are judged to carry inadequate safety, with regard to timely payment of financial obligations; they are less likely to default in the immediate future than instruments in lower rating categories, but an adverse change in circumstances could lead to inadequate capacity to make payment on financial obligations. Loans/facilities rated B (Lr) are judged to have high risk of default; while currently financial obligations are met, adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal. Loans/facilities rated CCC (Lr) are judged to have factors present that make them very highly vulnerable to default; timely payment of financial obligations is possible only if favorable circumstances continue. Loans/facilities rated CC (Lr) are judged to be extremely vulnerable to default; timely payment of financial obligations is possible only through external support. Loans/facilities rated C (Lr) are currently highly vulnerable to non-payment, having obligations with payment arrearages allowed by the terms of the documents, or obligations that are subject of a bankruptcy petition or similar action but have not experienced a payment default. C is typically in default, with little prospect for recovery of principal or interest. C (Lr) are typically in default, with little prospect for recovery of principal or interest. Loans/facilities rated D (Lr) are in default or are expected to default on scheduled payment dates.

*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

SHORT-TERM CREDIT RATING: LOANS/FACILITIES OF BANKS/FIS (All loans/facilities with original maturity within one year)
DEFINITION ST-1 Highest Grade ST-2 High Grade ST-3 Adequate Grade ST-4 Marginal ST-5 Inadequate Grade ST-6 Lowest Grade This rating indicates that the degree of safety regarding timely payment on the loans/facilities is very strong. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is strong; however, the relative degree of safety is lower than that for issues rated higher. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is adequate; however, the issues are more vulnerable to the adverse effects of changing circumstances than issues rated in the two higher categories. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is marginal; and the issues are quite vulnerable to the adverse effects of changing circumstances. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is minimal, and it is likely to be adversely affected by short-term adversity or less favorable conditions. This rating indicates that the loans/facilities are expected to be in default on maturity or is in default.

Copyright 2012, CREDI T RATI NG A GENC Y OF BANGLA DESH LIMITED ("CRAB"). All rights reserved. A LL I NFO RMATIO N CO NTAI NED HEREI N I S PRO TEC TED BY COPYRI GHT LAW AND NO NE O F SUCH INFORMA TION MAY BE COPIED OR OTHERWISE REPRO DUC ED, REPACKAGED, FURTHER TRA NSMI TTED, TRA NSFERRED, DISSEMI NATED, REDI STRIBUTED OR RESO LD, OR STORED FO R SUBSEQUENT USE FOR A NY SUC H PU RPOSE, IN W HOLE O R IN PART, IN ANY FORM O R MANNER O R BY ANY M EANS WHA TSO EVER, BY ANY PERSO N WITHOU T CRABS P RIOR W RITTEN CONSENT. All information contained herein is obtained by CRAB from sources believed by it to be accurate and reliabl e. B ecause of the possibility of huma n or mechani cal error as well as other factors, however, such infor mation is provided as is without warranty of any kind and CRAB, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeli ness, complet eness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or da mage in whol e or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement, coll ection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental da ma ges whatsoever (incl uding without li mitation, lost profits), even if C RAB is advised in a dvance of the possibility of such da mages, resulting from the use of or inability to use, any such infor mation. The credit ratings and financial reporting analysis observations, if any, constituting part of the infor mation contained herein are, and must be construed sol ely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hol d any securities. NO WARRA NTY, EXPRESS OR IMPLIED, AS TO THE ACCURAC Y, TIMELINESS, COMPLETENESS, MERC HANTABILI TY OR FITNESS FO R ANY PARTICULA R PURPOSE OF A NY SUC H RATI NG OR OTHER OPINION O R I NFORMA TION IS GIVEN O R MA DE BY CRAB IN ANY FORM OR MA NNER WHATSOEVER. Each rating or oth er opinion must be w eighed solely as one factor in any invest ment deci sion made by or on behalf of any user of the information contained herein, and each such user mu st accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each s ecurity that it may consi der purchasing, holding or selling.

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