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Credit Rating Report (Surveillance) M.M. Ispahani Limited

Credit Rating Report (Surveillance)

M.M. Ispahani Limited

Corporate

CRAB Rating Report

Particulars

Ratings

Remarks

M.M. Ispahani Limited

AA1

Entity

BDT 280.25 million aggregate Long Term Outstanding (LTO)

AA1

(Lr)

Please see

Appendix-1 for

details

BDT 2,610.0 million aggregate Cash Credit (Hypo)* limit

AA1 (Lr)

BDT 2,120.0 million aggregate Fund based limit

ST-1

BDT 4,065.0 million aggregate Non-Fund based limit

ST-1

Outlook

Stable

Lr- Loan Rating, ST- Short Term. * CRAB Considers CC (Hypo) as Long Term Loan because of it s revolving nature.

Date of Rating: 19 July 2012

Validity: The Entity and Long Term ratings are valid up to 30 June 2013 and the Short Term rating is 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, bank liability position as on June 30 2012 and other relevant quantitative as well as qualitative information up to the date of rating declaration.

Methodology: CRAB’s Corporate Rating Methodology (www.crab.com.bd)

Analysts:

RATIONALE

Mohammed Amin

amin@crab.com.bd

Khandakar Shahed Royhan shahed@crabrating.com

Khandakar Shahed Royhan shahed@crabrating.com Credit Rating Agency of Bangladesh Limited (CRAB) has

Credit Rating Agency of Bangladesh Limited (CRAB) has retained AA1 (Pronounced Double A One) rating in the Long Term of M.M. Ispahani Limited (hereafter referred to as MMIL or the Company) and AA1 (Lr) rating of BDT 359.17 million Long term loan outstanding (LTO) & BDT 75.00 million Cash Credit (Hypo) limit. CRAB has also assigned ST-1 rating to BDT 1805.0 million aggregate fund based limit.

CRAB has performed the present rating assignment based on audited financial statements as on 31 December 2011 and other relevant information.

M.M. Ispahani Limited is a concern of Ispahani Group. The group gained reputation in tea manufacturing & textile for its industrial skill, long experience and good distribution channel. New entry in the industry has increased competition but the incremental demand both in local & foreign market signals growth of such industry.

Major Changes in Surveillance

Sales growth 33%

Tea dept (53%), PHTM (45%) of total turnover

Financial Expense 13% Increased

New banks included (Pubali Bank & Brac Bank, Habib Bank ltd)

Overall Debt position expanded ( Short term loan 76% increased)

Debt position 1.0 (0.8 Last Year)

Operating exp increase 40%

Department wise Capacity utilization increased (2%-3%)

Market share unchanged

CRAB I CRAB Ratings on Corporate Credit Digest I 24 July 2012

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M.M.Ispahani Limited M.M. Ispahani Limited has been maintaining a diversified portfolio of revenue generating sources

M.M.Ispahani Limited

M.M. Ispahani Limited has been maintaining a diversified portfolio of revenue generating sources since its initiation. In the surveillance period it is observed that the Tea department contributed 53% (last year 55%) & PTWM contributed 45% (last year 43%) of the total consolidated turnover. The share of the M.M. Ispahani Limited in tea industry is developing significantly. In last financial year, the company gained highest local market share (33%) and export market share was 17%. It is reported that the market share is almost unchanged in the surveillance period. In the current period, the company generated sales revenue amounting BDT 8,417 million, registering 33% growth than that of previous year. In the current period the capacity utilization of Tea department increased to 92% (last year 90%) . COGS as percentage of sales (ranged from 81.8% to 85.5% during FY06 to FY11) remains stable although price hike of raw materials in textile industry was reported. The 40% increase of Operational expenses in 2011 impacted the overall earning factors viz EBIT & EBITDA negatively. As a result EBIT reduced -10% amounting BDT 253.87 million which was BDT 282.33 million in 2010.

Quality control is a key concern of tea processing industry and rating of MMIL also takes into account the availability of such facility and its maintenance level. The tea department has a quality control lab with most modern testing tool & technology. Most sophisticated machinery & equipments are used to ensure the quality of tea. The entity has both the manual & automated quality checking and control system. PTHM has also a testing lab where serial checking is done from pre operation to post operation of production. Raw cotton, and other related materials are used in production process prior to check the quality. Modern technology and experience d lab assistant of M.M. Ispahani Limited provide competitive advantage ensuring the quality of product.

The present rating has been conducted on the basis of audited financial statements. In the reported financial years (2009-2011) the position of Current & Quick ratio remained satisfactory. The position of fund flow slightly reduced due to lower net income amounting BDT 151.55 million (BDT 185.47 million in 2010).

The rating also considered the incremental borrowed fund. The Debt to Equity Ratio of M.M. Ispahani Limited slightly increased from 0.8 (x) to 1.0 (x) in FY11. The increasing business operation pusses the overall fund necessity significantly. Accordingly the entity increased its debt position adding two new banks in the surveillance period. Hence the entity requires utilization its entire production capacity to a satisfactory level to avoid adverse financial complexities in future. The year to year Equity inclusion is providing support to MMIL while the fund necessity is in increasing trend to achieve the optimum production capacity.

Loan rating of M.M. Ispahani Limited reflects on credit history and repayment behavior with financiers. HSBC, SCB

and UCB are the main bankers of the Company. It has said to have satisfactory repayment record as reported by the

financiers.

M.M.Ispahani Limited CRAB RATING SCALES AND DEFINITIONS –Long Term (Corporate) Long Term Rating Definition AAA

M.M.Ispahani Limited

CRAB RATING SCALES AND DEFINITIONS –Long Term (Corporate)

Long Term Rating

Definition

AAA

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.

Triple A

AA1, AA2, AA3* Double A

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.

A 1 , A 2 , A 3 Single A

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.

BBB 1 , BBB 2 , BBB 3 Triple B

Companies rated in this category have adequate capacity to meet financial commitments but more susceptible to adverse economic conditions or changing circumstances. These companies are subject to moderate credit risk. Such companies possess certain speculative characteristics.

BB1, BB2, BB3 Double B

Companies rated in this category 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.

B 1 , B 2 , B 3 Single B

Companies rated in this category have weak capacity to meet financial commitments. These companies have speculative elements, subject to high credit risk.

CCC 1 , CCC 2 , CCC 3 Triple C

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.

CC

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.

Double C

C

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.

Single C

D

D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized.

(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.

LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS (All loans/facilities with original maturity exceeding one year)

M.M.Ispahani Limited RATINGS DEFINITION AAA (Lr) Loans/facilities rated AAA (Lr) are judged to offer the

M.M.Ispahani Limited

RATINGS

DEFINITION

AAA

(Lr)

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.

(Triple A)

Highest Safety

AA (Lr)*

 

(Double A)

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.

High Safety

A

(Lr)

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.

Adequate Safety

BBB

(Lr)

Loans/facilities rated BBB (Lr) are judged to offer moderate safety, with regard to timely payment of financial o bligations 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.

(Triple B)

Moderate Safety

BB

(Lr)

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.

(Double B)

Inadequate Safety

B

(Lr)

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.

High Risk

CCC

(Lr)

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.

Very High Risk

CC (Lr) Extremely High Risk

Loans/facilities rated CC (Lr) are judged to be extremely vulnerable to default; timely payment of financial obligations is possible only through external support.

C

(Lr)

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.

Near to Default

D

(Lr)

 

Default

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.

www.crab.com.bd; www.crabrating.com

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M.M.Ispahani Limited SHORT-TERM CREDIT RATING: LOANS/FACILITIES OF BANKS/FIS (All loans/facilities with original maturity

M.M.Ispahani Limited

SHORT-TERM CREDIT RATING: LOANS/FACILITIES OF BANKS/FIS (All loans/facilities with original maturity within one year)

ST-1 Highest Grade ST-2 High Grade ST-3 Adequate Grade ST-4 Marginal ST-5 Inadequate Grade ST-6

ST-1

Highest Grade

ST-2

High Grade

ST-3

Adequate Grade

ST-4

Marginal

ST-5

Inadequate Grade

ST-6

Lowest Grade

DEFINITION

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 very

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.

on the loans/facilities is strong; however, the relative degree of safety is lower than that for

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.

are more vulnerable to the adverse effects of changing circumstances than issues rated in the two

This rating indicates that the degree of safety regarding timely payment on the loans/facilities is ma rginal; and the issues are quite vulnerable to the adverse effects of changing circumstances.

the loans/facilities is ma rginal; and the issues are quite vulnerable to the adverse effects of

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.

is minimal, and it is likely to be adversely affected by short-term adversity or less favorable
by short-term adversity or less favorable conditions. This rating indicates that the loans/facilities are expected

This rating indicates that the loans/facilities are expected to be in default on maturity or is in default.

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