VIS upgrades Entity Ratings of Novatex Limited - Press Release issued by VIS Credit Rating Company Limited.

Karachi -- July 10, 2020 (PPI-OT)

Following is the text of press release issued by VIS Credit Rating Company Limited

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VIS Credit Rating Company Limited (VIS) has upgraded entity ratings of Novatex Limited (Novatex) from 'AA-/A-1' (Double A Minus/A-One) to 'AA/A-1+' (Double A/A-One Plus). Long Term Rating of AA reflects high credit quality, and strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions. Short Term Rating of A-1+ indicates high certainty of timely payment; short term liquidity, including internal operating factors and/or access to alternative source of funds, is outstanding and safety is just below risk-free Government of Pakistan's short-term obligations. Outlook on the assigned ratings is 'Stable'. Previous rating action was announced on December 5, 2018.

Novatex is a part of G and T group of companies; the group has more than six decades of existence in diverse sectors including textile, plastic resin and power generation. Novatex operates in three business segments namely PET Resin, PET Preforms and BOPET Films. Moreover, Novatex (through a wholly owned subsidiary Nova Powergen Limited) has also pursued diversification by venturing in the power segment through investment in Thalnova Power Thar (Private) Limited (TNPTL), an under-implementation project.

The assigned ratings reflect low business risk profile, healthy financial risk profile and adequate corporate governance framework given the private shareholding structure. Business risk is considered low as the company mostly caters to pharmaceutical and consumer packaged goods industries having stable demand pattern. Business risk profile of the company is further supported by changing preference of consumers towards packaged goods, vertical integration vis-a-vis competition, sizeable barriers to entry, diversified operations, relatively limited risk of currency devaluation and strategic long-term supply contracts with major customers.

Key risk factors include risk of inventory loss and volatility in PET resin prices resulting from temporary supply and demand imbalances. However, business risk profile draws support from favourable...