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Report No. : |
341990 |
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Report Date : |
25.09.2015 |
IDENTIFICATION DETAILS
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Name : |
ENGRO CORPORATION LIMITED |
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Formerly Known As : |
ENGRO CHEMICALS PAKISTAN LIMITED |
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Registered Office : |
7th & 8th Floor, The Harbor Front Building, HC # 3, Marine Drive, Block 4, Clifton, Karachi |
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Country : |
Pakistan |
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Year of Establishment : |
1965 |
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Com. Reg. No.: |
0002159 |
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Legal Form : |
Limited Liability Company |
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Line of Business : |
The principal
activity of the Company is to manage investments in subsidiary companies and
joint venture, engaged in fertilizers, PVC resin manufacturing and marketing,
food, energy, exploration, LNG and chemical terminal and storage businesses. |
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No. of Employees : |
More than 2,000 |
RATING & COMMENTS
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MIRA’s Rating : |
Ba |
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RATING |
STATUS |
PROPOSED CREDIT LINE |
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41-55 |
Ba |
Overall operation is considered normal. Capable to meet normal
commitments. |
Satisfactory |
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Status : |
Good |
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Payment Behaviour : |
Regular |
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Litigation : |
Clear |
NOTES:
Any query related to this report can be made
on e-mail: infodept@mirainform.com
while quoting report number, name and date.
ECGC Country Risk Classification List – March 31, 2015
|
Country Name |
Previous Rating (31.12.2014) |
Current Rating (31.03.2015) |
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Pakistan |
B1 |
B1 |
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Risk Category |
ECGC
Classification |
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Insignificant |
A1 |
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Low |
A2 |
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Moderate |
B1 |
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High |
B2 |
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Very High |
C1 |
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Restricted |
C2 |
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Off-credit |
D |
PAKISTAN - ECONOMIC OVERVIEW
Decades of internal political disputes and low levels of
foreign investment have led to slow growth and underdevelopment in Pakistan.
Agriculture accounts for more than one-fourth of output and two-fifths of
employment. Textiles account for most of Pakistan's export earnings, and
Pakistan's failure to diversify its exportshas left the country vulnerable to
shifts in world demand. Official unemployment was 6.9% in 2014, but this fails
to capture the true picture, because much of the economy is informal and underemployment
remains high. Pakistan’s human development continues to lag behind most of the
region.. As a result of political and macroeconomic instability, the Pakistani
rupee has depreciated more than 40% since 2007. The government agreed to an
International Monetary Fund Standby Arrangement in November 2008 to preventa
balance of payments crisis, but the IMF ended the Arrangement early because of
Pakistan’s failure to implement required reforms. The economy has stabilized,
it continues to underperform and foreign investment has not returned to levels
seen during themid-2000’s, due to investor concerns related to governance,
electricity shortages, , and a slow-down in the global economy. Remittances
from overseas workers, averaging more than$1 billion a month, remain a bright
spot for Pakistan. After a small current account surplus in fiscal year 2011
(July 2010/June 2011), Pakistan's current account turned to a deficit where it
remained through 2014, spurred by higher prices for imported oil and lower prices
for exported cotton. In September 2013, after facing balance of payments
concerns, Pakistan entered into a three-year, $6.7 billion IMF Extended Fund
Facility. The Sharif government has since made modest progress implementing
fiscal and energy reforms, and in December 2014 the IMF described Pakistan’s
progress as “broadly on track.” Pakistan remains stuck in a low-income,
low-growth trap, with growth averaging about 3.5% per year from 2008 to 2014.
Pakistan must address long standing issues related to government revenues and
the electricity and natural gas sectorsin order to spur the amount of economic
growth that will be necessary to employ its growing and rapidly urbanizing
population, more than half of which is under 22. Other long term challenges include
expanding investment in education and healthcare, adapting to the effects of
climate change and natural disasters, and reducing dependence on foreign
donors.
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Source
: CIA |
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Business Name |
ENGRO CORPORATION LIMITED
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Registered
Address |
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7th & 8th Floor,
The Harbor Front Building, HC # 3, Marine Drive, Block 4, Clifton, Karachi,
Pakistan |
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Tel # |
92 (21) 111-211-211, 35297501 - 10 (10
Lines) |
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Fax # |
92 (21) 35810669 |
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Website |
Dharki District, Ghotki,
Sindh, Pakistan
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a. |
Nature of Business |
The principal activity of the Company is to manage investments in subsidiary
companies and joint venture, engaged in fertilizers, PVC resin manufacturing
and marketing, food, energy, exploration, LNG and chemical terminal and
storage businesses |
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b. |
Year Established |
1965 |
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c. |
Registration # |
0002159 |
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A. F. Ferguson & Co. (Chartered Accountants) |
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The company is incorporated in Pakistan as a limited liability company
and is listed at Karachi, Islamabad and Lahore Stock Exchanges of Pakistan. |
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The Company’s name changed from “ENGRO
CHEMICALS PAKISTAN LIMITED” to “ENGRO CORPORATION LIMITED”. |
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Names |
Designation |
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Mr. Hussain Dawood Mr. Muhammad Aliuddin Ansari Mr. Frank Murray Jones Mr. Shahzada Dawood Mr. Khawaja Iqbal Hassan Mr. Shahid Hamid Pracha Mr. Shabbir Hashmi Mr. Ruhail Mohammed Mr. Khalid Siraj Subhani Mr. Abdul Samad Dawood Mr. Saad Raja Mr. Sarfaraz Ahmed Rehman |
Chairman President / CEO Director Director Director Director Director Director Director Director Director Director |
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Categories |
Shareholding (%) |
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Directors, Chief Executive Officer and their spouse and minor children Associated Companies, Undertakings & related parties NIT & ICP Banks, Development Financial Institutions, Non-Banking Financial
Institutions Insurance Companies Modarabas & Mutual Funds General Public Others |
0.93 44.75 1.51 3.41 2.45 3.52 25.40 18.03 |
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(1) Engro Vopak
Terminal Limited, Pakistan. (2) Engro Fertilizers
Limited, Pakistan. (3) Engro Eximp
(Private) Limited, Pakistan. (4) Engro Foods
Limited, Pakistan. (5) Engro Innovation
Automation (Private) Limited, Pakistan. (6) Engro Avanceon
Limited, Pakistan. (7) Engro PowerGen
Limited, Pakistan. |
The principal activity of the Company is to manage investments in subsidiary companies and joint venture, engaged in fertilizers, PVC resin manufacturing and marketing, food, energy, exploration, LNG and chemical terminal and storage businesses
More than 2,000
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Description |
Designed Annual Capacity 2013 2012 |
Actual production 2013 2012 |
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Urea (Metric Tons) NPK (Metric
Tons) PVC Resin (Metric Tons) EDC (Metric
Tons) Caustic Soda (Metric Tons) VCM (Metric
Tons) Power (Mega
Watts) Dairy & Juices ( Thousand Ltrs) Drying unit of rice processing Plant (Metric
Tons) Ice Cream
(Thousand Litres) |
2,275,000 100,000 156,000 127,000 106,000 220,000 1,861,198 657,000 414,000 39,000 |
2,275,000 100,000 150,000 127,000 106,000 220,000 1,881,360 601,481 234,000 35,527 |
1,561,575 92,839 146,000 117,000 115,000 170,000 1,333,664 422,818 196,478 14,500 |
974,425
67,755 146,000 110,000 107,000 146,000 1,767,083 476,788 139,575 16,560 |
|
(1) Standard Chartered Bank, Pakistan. (2) MCB Bank Limited,
Pakistan. (3) Allied Bank
Limited, Pakistan. (4) United Bank
Limited, Pakistan. (5) Habib Bank
Limited, Pakistan. (6) JS Bank Limited,
Pakistan. (7) Bank Al-Habib
Limited, Pakistan. (8) Bank Alfalah
Limited, Pakistan. (9) Askari Bank
Limited, Pakistan. (10) Citibank
Limited, Pakistan. (11) NIB Bank
Limited, Pakistan. (12) Samba Bank
Limited, Pakistan. (13) Faysal Bank
Limited, Pakistan. |
Very Good
Engro Corporation performed well throughout
2013 achieving a record profit after tax of PKR 8,183 million vs. unusually low
profit after tax of PKR 1,333 million in 2012 on a consolidated basis. The
Company also achieved the highest ever top line of PKR 155,360 million in 2013
vs. PKR 125,151 million in 2012. The main reason for the record profit after
tax was a turnaround in Engro Fertilizer coupled with an impressive performance
by Engro Polymer, a healthy contribution by Engro Vopak and EXIMP’s return to
profitability. Engro Corporation’s total shareholder return of 72% during 2013
was higher than the returns provided by KSE. As a result of the improved
financial performance, PACRA upgraded the company’s entity rating from ‘A’ to
‘AA-’ post the year end.
The year ended
December 31, 2013 was a turnaround year for Engro Fertilizers Limited. The
Company managed to return back to profitability after incurring a loss in 2012
and in the process, achieved its highest ever revenue and profit. The sound
financial performance was on the back of highest ever production and sales. The
Company was listed through an IPO which was a huge success. In January 2014,
PACRA has upgraded the long term and short term ratings for Engro Fertilizer to
‘A’ and ‘A-1’ from ‘A-‘ and ‘A-2’ respectively. In December 2012, the Economic
Coordination Committee (ECC) formally allocated 202 MMSCFD gas from dedicated
fields to a Consortium of four fertilizer manufacturers (FFM) in which the
share of Engro Fertilizers is 79 MMSCFD. In order to implement this allocation,
the Company has successfully entered into long term Gas Supply Agreements with
the operators of Kunar Pasaki Deep (KPD), Makori and Reti Maru fields and
signed a term sheet with Mari SML. Until the implementation of this allocation,
ECC approved 22 and 12 MMSCFD gas allocation from Mari SML and Reti Maru fields
respectively given their proximity to the Company’s plant. Mari SML started
flowing from April 2013, while Reti Maru started flowing from December 2013.
FFM is awaiting ratification from ECC for the long term agreement. The Company
operated on single plant for most of the first half of 2013. The Company
started receiving 60 MMSCFD of additional gas since end July 2013 from Mari
which enabled it to operate both of its plants at around 80% capacity.
Additional gas availability has helped the Company to achieve record sales of
1,570 KT during 2013 vs. 953 KT during 2012. The improved sales were a result
of higher urea demand coinciding with increased production. The Company’s share
of the urea market increased to 26% in 2013 as compared to 18% in 2012. The
share of domestically produced urea also improved to 32% compared to 23% in
same period last year. The Company’s blended fertilizers’ (Zarkhez & Engro
NP) sales for the year increased by 19% to 95 KT compared to 80 KT during 2012.
Pakistan’s potash market remained stable at 20 KT (nutrient basis) during 2013.
The Company’s market share in potash industry increased from 40% last year to
around 50% in 2013. Approximately 52,000 farmers were contacted through market
development activities. As a result of severe gas curtailment, the Company had
approached a majority of its lenders for re-profiling of various finance
facilities in 2012. As at December 31, 2013, the Company has agreed with all
the lenders for the re-profiling of its long term loans, however, necessary
documentation of DFI consortium is in process. Under the revised terms, the
tenure of the re-profiled loans has been increased by 2.5 years with some interim
payments in the initial period. Long term borrowings at year end fell to PKR
58,821 million (2012: PKR 66,378 million). During the year, the Company also
made early repayments due to improved cash flows. During the year, the Company
offered 75 million ordinary shares, out of which 56.25 million shares were
subscribed through Book Building process at a price of PKR 28.25 per share and
the remaining were offered to the general public. Book Building and the public
issue were both over-subscribed by 4 and 3.4 times respectively, which reflects
investor confidence in the Company’s future. As part of the IPO structure,
Engro Corporation Limited (ECorp) further divested 30 million shares of the
Company. As a result of these transactions ECorp, subsequent to the balance
sheet date, holds 91.91% of the share capital of the Company. In 2012, the
Company along with other fertilizer companies received a show cause notice from
the Competition Commission of Pakistan (CCP) for initiating action under
Competition Act, 2010 in relation to unreasonable increase in urea prices.
During the year CCP issued an order whereby it has imposed a penalty of PKR
3,140 million on the Company. The Company has filed a writ in the Sindh High
Court and a stay has been granted against the recovery of the imposed fine. The
Company feels that it has adequate defense to justify the price increases
specifically in light of 2012 losses, which along with other justifications,
will result in disposition of case in Company’s favor. During 2013, the company
made a profit after tax of PKR 5,497 million vs. a loss of PKR 2,935 million
last year. Engro Fertilizers revenue for the year was PKR 50,129 million vs.
PKR 30,627 million in 2012.
The year 2013 was a test of Company’s
resilience to face turbulent times after a stellar few years back to back.
Aggravating power crises, law & order situation, high inflation and
significant rise in energy cost had an impact on consumer spend. The Company
also faced distribution issues which impacted its volumes and profitability.
The combined result of these factors was a decline in revenue from PKR 40,169
million in 2012 to PKR 37,891 million in 2013 and a decrease in net profit from
PKR 2,595 million in 2012 to PKR 1,092 million in 2013 on a like-with-like
basis excluding one-time charges. These one-time charges include provision
against recognition of accumulated cash losses of EFoods Netherlands since
inception and a charge related to sales tax for the period when FBR temporarily
removed Zero rating status of dairy products. The impact of these charges was
PKR 881 million which, reduced profitability for the year down to PKR 211
million. Due to the above mentioned challenges, dairy and beverages segment
volumes declined by 11% vs. last year. Company’s ambient UHT market share also
declined from 51% in 2012 to 49% in 2013. However, corrective actions have been
taken to address the distribution challenges which led to a volume growth of
15% in 4th quarter of 2013 vs. the 3rd quarter. The Pakistani ice cream
and frozen desserts market continued its downward trend due to the persistent
energy crisis and price increases, with the industry volume declining by
approximately 16%. However, continued innovation enabled Omore to maintain its
market share at 25%. Despite the volume decline, the segment has reduced its
after tax loss from PKR 409 million to PKR 320 million due to cost control and
margin improvement. The Company’s Nara Dairy Farm continued to remain a rich
and nutritious source of quality milk for our dairy segment. Due to decrease in
international prices of livestock and certain write- offs, the Nara farm
registered a net loss after tax of PKR 137 million in 2013 vs. net loss after
tax of PKR 21 million in 2012.
During 2013,
Engro EXIMP Agriproducts Ltd. (EEAP) sold 58.5 KT rice, its highest ever sales
volume since inception. The Company also made a record procurement of 190 KT of
Paddy during the 2013-14 season. EEAP successfully launched its own branded
product “Rymah” in the UAE. Moreover, branded “Bharosa” outlets and whole sale
operations were launched in Pakistan. Bharosa outlets have become hub for
distribution into general trade. The Company, under its “Bharosa Seed Program”,
has become Pakistan’s largest private sector Basmati seed provider by
distributing 550 tons of seed to farmers in 2013. The program aims to improve
farmer yields and product quality thereby improving the Company’s own milling
recoveries. A 4MW biomass steam turbine was commissioned in November 2013 which
is expected to significantly reduce energy costs of paddy processing. EXIMP’s
phosphates sales increased by 53%; from 262 KT in 2012 to 401 KT in 2013. This
was a result of a substantial increase in industry volume coupled with
Company’s strategic trading calls which enabled a market share increase to 25%
vs. 22% last year. Despite a declining trend in international prices, the
Company managed to make decent margins in the business. EXIMP continued sugar
and palm oil trade handling volumes of 11 KT and 21 KT respectively. In the
first year of coal trading and handling operations, EXIMP achieved a market
share of 5% by supplying 162 KT of imported coal primarily to cement plants
across Pakistan. EXIMP’s revenue increased to PKR 32,853 million in 2013 from
PKR 20,977 million while consolidated profit after tax for 2013 stood at PKR 59
million as compared to a loss of PKR 426 million in 2012. The profitability of
fertilizer and commodity trade was off-set by PKR 1,167 million of losses in
the Rice business despite improvement in operational parameters.
The most significant event in the power
sector during 2013 was the resolution of circular debt in June which resulted
in PEPCO making a PKR 9 billion payment against overdue receivables.
Accordingly, the company paid PKR 5.4 billion against overdue payables to
SNGPL. During 2013, the Company successfully completed the most complex and
extensive turnaround of its plant since it was first Iquarter, the Qadirpur
power plant was shutdown due to a rotor fault. The shutdown lasted for 76 days
but the issue was successfully rectified and the plant started its normal
operations from December 27, 2013. During the year 2013, Qadirpur Plant
demonstrated a Billable Availability of 83.1%. It dispatched a total Net
Electrical Output of 1,334 GwH to the National Grid with a load factor of 71.7%
as compared to set up. 93.8% in 2012. Overdues from PEPCO stood at PKR 1,248
million as on December 31, 2013 against overdues of PKR 5,787 million as on
December 31, 2012. Overdue amount payable to SNGPL on December 31, 2013 was PKR
386 million vs. PKR 2,683 million in 2012. Engro Powergen Qadirpur earned a net
profit of PKR 1,458 million for 2013 as compared to PKR 2,101 million last
year. The Company continues to focus on plant performance improvement
initiatives to ensure its reliability and availability to the national grid and
ensure maximum benefit for all stakeholders. Engro Powergen Ltd. made its first
overseas investment in a 72MW captive power plant for a refinery in Nigeria.
This fast track project is expected to come online by mid-2014.
Global Ethylene
prices remained volatile during 2013 due to political uncertainty and
turnaround in some of the major plants. The resulting cost pressure was not
entirely reflected in PVC prices particularly during second half of the year
because of continuing slow pace of global economic growth. The domestic market
expanded by less than 1% during 2013, however, the Company recorded a growth of
4% enabling it to achieve an estimated market share of 81% as against 79% in
2012. In March 2013, Government’s strategic import policy restricted import of
plastic scrap only to industrial consumers with proper recycling and imposed a
ban on import of hazardous material. This will help in ensuring safe and better
quality application, which will be mutually beneficial to plastic and PVC
industry. The Company demonstrated operational excellence by producing its
highest ever VCM volume of 170 KT during 2013 as compared to 146 KT produced in
2012. This allowed entire PVC production of 146 KT without the need of imported
VCM improving margins. Considering PVC market potential, the Company
successfully completed debottlenecking of one of its PVC plants during mid-2013
resulting in additional capacity of 6 KT. The Company achieved 139 KT of PVC
sales in domestic market during the year as compared to 133 KT in 2012.
Engro Vopak
handled its highest ever volume of 1,135 KT during 2013 mainly due to higher import
of EDC, LPG and Phosphoric Acid. The Company also modified its ACN tanks which
were unused since 2010 and brought these under use for storage of EDC for Engro
Polymer. The contract with Fauji Fertilizer Bin Qasim Limited for reception and
delivery of Phosphoric Acid was also renewed for another fifteen years.
Company’s revenue was PKR 2,052 million vs. PKR 2,376 million in 2012 due to
revision in tariff of Lotte in 4Q 2012. The profit after tax for 2013 was PKR
1,219 million as compared to PKR 1,488 million in 2012.
|
Currency |
Unit |
Pakistani Rupee |
|
US Dollar |
1 |
Rs. 104.20 |
|
UK Pound |
1 |
Rs. 159.35 |
|
Euro |
1 |
Rs. 115.85 |
Subject Company is well known and directors are
resourceful and experienced businessmen. Their trade relations are reported as
fair. Payments to creditors etc are
reported as normal. Company can be considered for normal business dealings at
usual trade terms and conditions.
FOREIGN EXCHANGE RATES
|
Currency |
Unit
|
Indian Rupees |
|
US Dollar |
1 |
Rs.66.10 |
|
|
1 |
Rs.100.89 |
|
Euro |
1 |
Rs.73.96 |
INFORMATION DETAILS
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Analysis Done by
: |
DIV |
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Report Prepared
by : |
NIT |
RATING EXPLANATIONS
|
RATING |
STATUS |
PROPOSED CREDIT LINE |
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|
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>86 |
Aaa |
Possesses an extremely sound financial base with the strongest
capability for timely payment of interest and principal sums |
Unlimited |
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71-85 |
Aa |
Possesses adequate working capital. No caution needed for credit
transaction. It has above average (strong) capability for payment of interest
and principal sums |
Large |
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56-70 |
A |
Financial & operational base are regarded healthy. General unfavourable
factors will not cause fatal effect. Satisfactory capability for payment of
interest and principal sums |
Fairly Large |
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41-55 |
Ba |
Overall operation is considered normal. Capable to meet normal
commitments. |
Satisfactory |
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26-40 |
B |
Capability to overcome financial difficulties seems comparatively
below average. |
Small |
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11-25 |
Ca |
Adverse factors are apparent. Repayment of interest and principal sums
in default or expected to be in default upon maturity |
Limited with
full security |
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<10 |
C |
Absolute credit risk exists. Caution needed to be exercised |
Credit not
recommended |
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-- |
NB |
New Business |
-- |
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This score serves as a reference to assess SC’s
credit risk and to set the amount of credit to be extended. It is calculated
from a composite of weighted scores obtained from each of the major sections of
this report. The assessed factors and their relative weights (as indicated
through %) are as follows:
Financial
condition (40%) Ownership
background (20%) Payment
record (10%)
Credit history
(10%) Market trend (10%) Operational size
(10%)
This report is issued at your request without any
risk and responsibility on the part of MIRA INFORM PRIVATE LIMITED (MIPL) or
its officials.