KARACHI (January 10 2004): JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial medium to long-term and short-term entity ratings of A (Single A) and A-1 (A One) to Coronet Foods (Pvt) Ltd (CFL).

The outlook on the medium to long-term rating is 'Stable'.

CFL is a wholly owned subsidiary of English Biscuit Manufacturers (Pvt) Ltd (EBM), which is a pioneer biscuit manufacturing company in the branded segment in Pakistan.

CFL was set up in the industrial area of Hattar in 1995 to expand the manufacturing capacity of Peek Freans biscuits and gain tax exemption status extended in that area, which has, however, expired in FY2003.

The production and marketing planning of CFL is done collectively with EBM as the top management of the companies is shared.

The assigned ratings take into account the low level of debt leverage maintained by the company in line with the sponsor's conservative philosophy and the exceptionally high cash flow coverage to outstanding debt for that reason.

Over the years, CFL has demonstrated strong operating results with substantial growth in equity from high growth in sales volume and strong profit margins.

The liquidity position is also healthy with low debt servicing and working capital requirements.

The industry issue impacting the gross margins of the company is the stagnant biscuit prices in the last few years as the demand is discretionary and highly price elastic.

Thus adverse fluctuations in raw material prices cannot be passed on to the consumers.

To counter this, the management's strategy is focused on achieving sales volume growth for improved profitability through consistent expenditure on improvement and expansion of the production capacity backed by proactive marketing efforts.

The management is currently in the process of improving information technology systems, after which the factory operations will come on-line with the head office and result in improved information flow for decision-making purposes. 

Courtesy Business Recorder