21010011 MBA 21 FA II FINAL

AT-TAHUR CREDIT RATING

Management and Organization
 Majority shares are held by member directors of the company, their spouses and their
children. This creates significant agency problems.
 No information is given about the background of the directors. If directors belong to the
dairy field, it must be mentioned in the report as it will establish credibility amongst
current and potential investors
 The ambiguous revaluation of biological assets combined with agency problems raises
red flags about the company’s accounting risk
Industry
 Pakistan being the 4th largest producer of milk means that it has a potential to develop this
market.
 Pakistan measures its productivity by herd cattle size; in the recent years, the number of
animals in the heard is increasing. Cow milk is becoming increasingly popular for direct
consumption whereas buffalo milk is favored for commercial use to develop cheese,
yogurt etc.
 Major problem is that two, captal intensive, well financed companies (Nestle and former
Engro) dominate the industry with well over 88% market share.
 There is a negative consumer sentiment about packaged milk. Marketing can improve
this image.
Business Risk
 JCR – VIS mentioned location of a manufacturing firm has impact on its business risk.
So far, At-Tahur only has one plant in Kasur according to the information provided.
However Kasur area is well renowned for its cattle and the company can start a lower
cost line with the help of local instead of imported cattle
 By introducing multiple product lines (yogurt, flavoured yogurt, Raita, etc.) the company
has lowered its business risk (a benefit of diversification of product portfolio)
Capital Structure
 The company has low financial risk
 Debt-to-equity ratio is 0.06 compared to 0.18 last year
 Current ratio of 1.8, indicates a better ability of At-Tahur to pay off short term
obligations.
 Company can make better utilization of its capacities to generate more cash flows.
 Assets on Lien are low indicating that the firm can utilize the assets to borrow and invest
to stimulate growth
Profitability & CFs
 The company has substantially increased its revenue with the help of revaluation
 Operating CFs have, on the other hand, shown a tremendous decrease.
21010011 MBA 21 FA II FINAL

Short Term Credit Rating

I would give At-Tahur A-1+ rating in the short term.
The company also has underutilized revolving credit lines.
Long Term Credit Rating
I would give BBB in the long term. A decrease in debt-to-equity ratio gives me confidence about
the company in the long term. Furthermore, the company has increased its capacity, and
increased demand in the long run may further allow At-Tahur to utilize this capacity to increase
CFs.
Their revaluation method to boos income is the major thing that puts me off in assigning a better
rating