Shaheen Traders FINAL,06!07!2011

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M/ S Shaheen Traders

Credit Rating Report

Date of Declaration

Valid Till Rating Action

Long TermRating

Short TermRating

Outlook

June 22,2011

June 21,2012

Initial - ECRL-3 Stable

Proprietor : Moh. Shah Alam Hossain

Total Asset : BDT 110.95 million

Bank : Islami Bank Bangladesh Limited

Bank loan : Bai Murabaha BDT 17.28 million ( As at March 25, 2011)

Murabaha TR BDT 19.67 million ( As at March 25, 2011)

Contact Analysts : Sk. Arifa Sultana [email protected]

Mahadi Tareq [email protected]

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of 11SHAHEEN TRADERS

Shaheen Traders

Major Rating Factors

Strengths Diversified product line.Long term business relationship with other related business and merchant.Strong network for collecting trading goods.

Challenge/

Risks

Changes in government policy and regulation regarding import.Price fluctuation of trading goods.Maintenance of increasing inventory.

Rationale Emerging Credit Rating Limited (ECRL) has assigned ECRL-3 short term credit ratingto Shaheen Traders for the working capital loan of BDT 36.95 million as at March 25,2011 from Islami Bank Bangladesh Limited. The outlook on the rating is Stable. Theassigned rating represents the strengths of the company which is backed by financialflexibility, profitability, and moderate liquidity. However, ECRL is concerned aboutweak financial reporting, inventory management, negative cash flow, unsatisfactoryinterest coverage and hence firm’s ability to serve debt obligation.

Shaheen traders registered sales growth of 14% and 11.6% in 2010 and 2009respectively due to increased customers and price hike of trading goods. Cost of saleswas 96% of sales revenue in both 2010 and 2009. Operating income increased in linewith increased revenue. The company is not known to be paying taxes. Financialcosts increased by 56% in 2010 for increase in utilization of finance limit which wasoffset by increased operating revenue. Gross profit margin is only 3.99, deviatedslightly from previous year (3.60:2009). Operating profit margin increased to 3.27 in2010 from 2.98 in 2009 as efficient result of a more efficient management of costs.Net profit margin is stable for last four year. High demand and diversification of trading goods has been main reason behind secure earnings.

Current ratio of Shaheen Traders shows increased current asset compared to currentliability from 2008 to 2010 resulting from increased demand. Quick ratio is same asthat of the previous year. Most of the payments transactions are done in cash and sodays receivables and payables are much lower compared to industry average.However, large inventory contributes to increase inventory turnover to 38.08 daysfrom 32.62 days. As a result, cash conversion cycle increased to 42.42 days from40.29 days

Returns on asset decreased in 2010 because of increased current assets. Currentassets comprise of 79.57% of total asset. Return on equity decreased due toincreased equity in 2010.

Cash flow from operation has increased in recent years to BDT 7.51 millions in 2010from BDT 6.73 million. However, interest coverage has decreased to 1.65 times(2010) from 2.30 times (2009) because of increase in finance cost.

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Emerging Credit Rating Ltd

CREDIT ANALYSIS




The company only took working capital loan. The company has a working capital loanlimit of BDT 40 million which reflects that it left 7.625% unutilized On the other hand,this also reflects that they have very little flexibility. In last three year’s performanceof repayment schedule shows that the firm had not missed any payment of installments yet.

Exhibit 1: Financial Highlights: Shaheen Traders

*Audited financial statements of 2008-2010

FYE 31 December 2010 2009 2008Revenue (BDT in Millions ) 631.91 554.38 496.86

Revenue Growth (%) 14.0 11.6 -

COGS (BDT in Millions) 606.68 534.41 478.60

COGS Growth (%) 13.5 11.7 -

Operating Income (BDT in Millions) 20.68 16.50 15.30

Net Profit After Tax (BDT Millions) 13.62 12.07 10.75

Gross Profit Margin (%) 3.99 3.60 3.68

Operating Profit Margin (%) 3.27 2.98 3.08

Net Profit Margin (%) 2.16 2.18 2.16Current Ratio (x) 2.30 1.99 2.72

Cash Conversion Cycle (Days) 42.42 40.29 20.27

Debt to Equity Ratio (x) 0.46 0.57 0.48

CFO Interest Coverage (x) 1.65 2.30 -

ROA (%) 12.84 13.06 15.56

ROE (%) 18.79 20.51 22.97

CFO 7.51 6.73 -




A. BUSINESS DESCRIPTION

A.1. Firm Background

M/S Shaheen Traders is retailer, wholesaler, trading agent and general merchant of commodityproducts which includes sugar, edible oil, coconut oil, lentils, rice, salt, mineral water, condensed

milk, flour, wheat, maize etc. The concern is a dealer and agent of Jamuna Oil Co. Ltd., UreaFertilizer and Meghna Group of Industries. The legal status of the concern is a proprietorship. Thecompany was established in 1998 having its office at 54, Monohari patty road, Jhalakathi with totalgodown capacity of 1500 tons approximately. In addition to that the concern has a 300 ton vessel tocarry its commodities. It’s noted that the proprietor has extensive experience in retail and wholesalebusiness of trading commodities. He has started his business back in 1983 in Chittagong and later onhe has moved to Jhalakathi in 1998. Currently two siblings along with eight other are responsible forday to day operations. The concern has 6 permanent workers and has easy access to labor market tohire more workers if needed. All the trading commodities are purchased from all over the countryespecially from Kawran Bazar, Tongi Bazar, Chittagong and may others.. Some of the commoditieslike sugar and wheat are purchased directly from mills The trading goods are sold only in BarisalDivision.

B. INDUSTRY ANALYSISB.1. Fertilizer Industry

In Bangladesh, Urea, TSP and SSP are produced in the local industries which meet a portion of thecountry’s total demand. Natural gas provides for urea production. Bangladesh Chemical IndustriesCorporation (BCIC) is responsible for the operation of all fertilizer factories in the country. The lowproduction of urea was due to sudden closure of Ghorasal urea fertilizer factory. The difference of 1.35 million tons) is imported.

The Ministry of Agriculture fixes up monthly as well as annual requirement of fertilizers. Besidesdemand requirement, the Ministry also supervise production, import and price fixation. The privateimporters import TSP, DAP and MOP from USA, Tunisia, Australia, Jordan, Morocco CIS and China

according to the annual needs of the country.

B.2. Food industry

Bangladesh is a major importer of food.With a rising population the Disaster Management Bureau(2007) estimated that by 2015 Bangladesh will require 0.55 million metric ton of maize, 0.16 millionmetric tons of wheat and 21.95 million tons of rice. Currently Asia is experiencing inflation in fooditems. Most of the time, Bangladesh faces shortage of food grain in the local market over a significanttime period. Bangladesh had produced about 29 million tons of coarse rice for its 160 million peopleand imported some 3 million tons in fiscal year 2008-09. According to the ADB, there is a global risein the prices of food items as its global output had decreased owing to extreme weather conditions inmajor food producer countries.

C. BUSINESS RISK ANALYSIS

C.1. Price Hike:

Most of the products which Shaheen Traders trades on are necessary goods. As a result marginal risein price can impact the sales. Increased price of goods may lead the whole seller to experience adecrease in margin to maintain good relationship with buyers.

C.2. Potential Changes in Global or Na tional Policies:

Changes in national and global policies will affect the business of a wholesaler. Since Bangladesh is amajor importer of food products, changes in policies of food by the government will affect the price of imported food products.




C.3. Change in Dem and:

One of the major risks which Shaheen Traders faces is change in demand of its products. Demand forproducts may change due to government purchases, new government regulation, changes in climate,and changes in demand of substitute goods.. However, the firm have an advantage over the tradingas it only imports food grains and raw materials for cement. Both types of products have high

demand in market.

D. FINANCIAL R ISK ANALYSIS

The rating process was based on qualitative aspects which are based on the firm’s policies in relationwith the operating strategies, financial leverage, and ultimate financial goals of the company. For thepurpose of an overall assessment of financial risk of the firm, ECRL divided the financial portion intofive different criteria which are Profitability Analysis, Liquidity Analysis, Cash flow Analysis, AssetManagement, Capital Structure, and overall Financial Flexibility. Detailed analysis is presented below:

D.1. ProfitabilityExhibit 2: Selected Indicators: Shaheen Traders

Shaheen traders registered growth of 14% and 11.6% in 2010 and 2009 respectively due toincreased customers and increase in the prices of trading goods. Cost of sales was same as previousyear which was96% of sales revenue. Operating income increased in proportion to increase revenue.The company does not pay tax. Finance cost increased by 56% in which was offset by increasedoperating revenue. Gross profit margin is only 3.99, deviated slightly from previous year (3.60:2009).Operating profit margin increased to 3.27 in 2010 from 2.98 in 2009. Return on asset decreased in2010 because of increased current asset. Current asset comprise of 79.57% of total asset andincreased by 29.1% in 2010 from previous year. Return on equity decreased because of increasedequity in 2010.

D.2. Liquidity Analysis:

Exhibit 3: Selected Indicators: Shaheen Traders FYE 31 December 2010 2009 2008

Current Ratio (x) 2.30 1.99 2.72

Quick Assets Ratio (x) 0.44 0.43 0.98

Days Receivables (days) 6.35 8.59 5.56

Days Payable (days) 2.02 0.92 0.65

Inventory Turnover (days) 38.08 32.62 15.35

Cash Conversion Cycle (days) 42.42 40.29 20.27

Current ratio of Shaheen Traders shows increased current asset compared to current liability from2008 to 2010 resulting from increased demand. Quick ratio is same as previous year. Most of the

FYE 31 December 2010 2009 2008

Revenue (BDT in millions ) 631.91 554.38 496.86

Revenue Growth (%) 14.0 11.6 -

COGS (BDT in Millions) 606.68 534.41 478.60

COGS Growth (%) 13.5 11.7 -

Operating Income (BDT in millions) 20.68 16.50 15.30

Net Profit After Tax (BDT millions) 13.62 12.07 10.75

Gross Profit Margin (%) 3.99 3.60 3.68

Operating Profit Margin (%) 3.27 2.98 3.08

Net Profit Margin (%) 2.16 2.18 2.16ROA (%) 12.84 13.06 15.56

ROE (%) 18.79 20.51 22.97




transactions of payments are done in cash and so days receivables and days payables are very lesscompared to industry average. However, large inventory contributes to increased inventory turnoverfrom 32.62 days to 38.08 days. As a result, cash conversion cycle increased to 42.42 days from 40.29days.

D.3. Cash-flow Coverage

Exhibit 3: Selected Indicators: Shaheen Traders FYE 31 December 2010 2009

CFO (BDT Million) 7.51 6.73CFO Interest Coverage (x) 1.65 2.30CFO Debt Coverage (x) 0.09 0.11CFO Short-Term Debt Coverage (x) 0.09 0.11

Cash flow from operation has increased in recent years to BDT 7.51 millions in 2010 from BDT 6.73million. However, interest coverage has decreased to 1.65 times (2010) from 2.30 times (2009)because of increase in finance cost.

D.4. Leverage & Capit al Structure

Exhibit 4: Selected Indicators: Shaheen Traders FYE 31 December 2010 2009 2008

Debt-to-Equity (x) 0.46 0.57 0.48

Short Term Debt Ratio(x) 0.46 0.57 0.48

Debt to OPBITDA (x) 1.62 2.03 1.45

Total Liabilities to Total Assets (x) 0.35 0.38 0.33

Net Asset Value (BDT in millions) 72.49 58.87 46.79

Shaheen Traders does not have any long term loan. They have enhanced short term bank loan in2010. However, Debt to Equity ratio of 2010 reduced to 0.46 times in 2010 from 0.57 times in 2009as equity increased by 23.1%. Absence of drawing in 2010 from the fund is the main reason toincrease equity. Total liability increased and fixed asset decreased in 2010. However these changeswere offset in total liability to total asset as current asset increased by 25%. Increase in net assetvalue is another contribution of increased current asset.

D.5. Bank Facilities & Credit History

Exhibit 5: Bank Loan: Shaheen Traders As at March 25, 2011

Bank Mode Existing outstanding Total limit

IBBL

Bai Murabaha 17.2840

Murabaha TR 19.67Total (BDT in Millions) 36.95 40

Total principal outstanding liability of Shaheen Traders with IBBL was BDT 36.95 million as on March25, 2011. The company only took working capital loan. The company has a working capital loan limitof BDT 40 million which reflects that it left 7.625% unutilized. This indicates Shaheen Traders hasused the limit largely. On the other hand, this also reflects that they have very little flexibility. In lastthree year’s performance of repayment schedule shows the firm had not missed any installmentpayment date yet.




D.6. Collat eral

The proprietor kept land as collateral against bank loan from Islamic Bank Bangladesh Limited. Themarket value of collateralized assets is BDT 32.77 million.

Registered List of collateral for the Term loan: (BDT in millions)Particulars Mark et Value

(BDT in Millions) Forced Sale Value(BDT in Millions)

14.20 decimal of residential land owned by the client andhis brother

8.52 7.10

5.05 decimal of Commercial land with two storied buildingowned by the owner and his brothers and sisters

10.60 8.40

11.05 decimal of commercial land with semi-pucca houses(total 4,550 sft) owned by the client and his brother

9.50 7.40

236.70 decimal of high land with brick construction twostoried building (1450 sft) land owned by the client

4.15 2.10

Total 267 decimal land 32.77 25




BUSINESS INFORMATION

ProprietorMoh. Shah Alam Hossain

Office Address : 54, Monohari patty Road, JhalokathiPhone : 01711417265

Auditors

Ahmed Zaker & Co40, Shahid Nazrul Islam Road, Bijaynagar, (Kakrail)Dhaka-1000Phone: 02-9362787,02-9362847

List of Abbreviations

CCC Cash Conversion Cycle

CFO Cash Flow from Operation

COGS Cost of Goods Sold

ECRL Emerging Credit Rating Company

IBBL Islami Bank Bangladesh Limited

ROA Return on Asset

ROE Return on Equity




Shaheen TradersBalance Sheet

Amount in BDT

Financial Yea r Ending : December 2010 2009 2008

Amount in BDT

NON-CURR ENT ASSETSFixed And Operating Assets 22,664,593 23,767,162 6,969,141

22,664,593 23,767,162 6,969,141

CURRENT ASSETSInventories 71,344,150 55,255,850 40,255,900Trade Receivables 11,050,853 10,952,895 15,145,726Cash And Bank Balances 5,891,467 4,355,475 7,582,335

88,286,470 70,564,220 62,983,961

CURRENT LIABI LITIESBorrowings 33,603,884 33,603,884 22,310,174Trade Payables 4,850,342 1,852,347 845,975

38,454,226 35,456,231 23,156,149

NET CURRENT ASSETS/(LIABILITIES) 49,832,244 35,107,989 39,827,812

72,496,837 58,875,151 46,796,953

FINANCED BY :

PR OPRIETORS' EQUITY Retained Profits/(Losses) 72,496,837 58,875,151 46,796,953

72,496,837 58,875,151 46,796,953

72,496,837 58,875,151 46,796,953

NON-CURRENT LIABILITIESBorrowings 0 0 0

72,496,837 58,875,151 46,796,953*all the data are taken from Audited financial documents of the respective firm.

Shaheen TradersProfit and Loss Account

Amount in BDT

Financial Yea r Ending : December 2010 2009 2008

Revenue 631,914,650 554,381,450 496,868,322

Less : Cost Of Sales/Services (606,686,416) (534,414,518) (478,603,571)

Gross Profit 25,228,234 19,966,932 18,264,751

Less : Operating Cost (4,545,510) (3,462,847) (2,961,305)

Profit/(Loss) From Operations 20,682,724 16,504,085 15,303,446

Net Finance Costs (4,561,038) (2,925,887) (4,051,891)

Profit/(Loss) Before Tax 16,121,686 13,578,198 11,251,555

Tax Expense 0 0 0

Profit/(Loss) After Tax 16,121,686 13,578,198 11,251,555

Profit/(Loss) After Tax And Before Extraordinary Item Attributable To Shareholders 16,121,686 13,578,198 11,251,555

Restated Retained Profit/(Loss) Brought Forward 58,875,151 46,796,953 36,045,398

Profit/(Loss) Available For Appropriation 74,996,837 60,375,151 47,296,953

Unappropriated Profit/(Loss) Carried Forward 72,496,837 58,875,151 46,796,953*all the data are taken from Audited financial documents of the respective firm.




CORPORATE DEBT RATING SYMBOL

Notes: Long-Term Ratings from AA to B may be modified by the addition of a plus (+) or minus (-) suffix to showrelative standing within the major rating categories. Bank-guaranteed issues will carry a suffix (bg), corporate-

guaranteed issues, a (cg), issues guaranteed by a financial guarantee insurer (FGI), an (fg), and all other supports, an(s) when such guarantees or supports give favorable effect to the assigned rating.

SHORT-TERM RATINGS

ECRL’s Short-Term Ratings are assigned to specific debt instruments with original maturities of one year or less, and areintended to assess the likelihood of timely repayment of principal and payment of interest.

Notes: Short-Term Ratings will also carry a suffix (bg) for bank-guaranteed issues, (cg) for corporate-guaranteed

issues, (fg) for FGI-guaranteed issues, and (s) for all other supports when such guarantees or supports give favorableeffect to the assigned rating.

LONG-TERM RATINGS

ECRL’s Long-Term Ratings are assigned to debt with maturities of more than one year. These debt ratings specifically assessthe likelihood of timely repayment of principal and payment of interest over the term to maturity of such debts.

INVESTMENT GRADE

AAA Indicates that the ability to repay principal and pay interest on a timely basis is extremelyhigh.

AA Indicates a very strong ability to repay principal and pay interest on a timely basis, withlimited increment risk compared to issues rated in the highest category.

A Indicates the ability to repay principal and pay interest is strong. These issues could be more

vulnerable to adverse developments, both internal and external, than obligations with higherratings.

BBB The lowest investment grade category; indicates an adequate capacity to repay principal and

pay interest. More vulnerable to adverse developments, both internal and external, thanobligations with higher ratings.

BB While not investment grade, this rating suggests that likelihood of default is considerably less

than for lower-rated issues. However, there are significant uncertainties that could affect theability to adequately service debt obligations.

B Indicates a higher degree of uncertainty, and therefore, greater likelihood of default. Adverse

developments could negatively affect repayment of principal and payment of interest on atimely basis.

C High likelihood of default, with little capacity to address further adverse changes in financial

circumstances.

D Payment in default.

INVESTMENT GRADE

ECRL - 1 The highest category; indicates a very high likelihood that principal and interest will be paid on atimely basis.

ECRL - 2 While the degree of safety regarding timely repayment of principal and payment of interest is

strong, the relative degree of safety is not as high as issues rated ECRL-1.

ECRL - 3 The lowest investment grade category; indicates that while the obligation is more susceptible to

adverse developments, both internal and external, the capacity to service principal and intereston a timely basis is considered adequate.

Rating Outlook

ECRL’s Rating Outlook assesses the potential direction of the Corporate Debt Rating over the intermediate term (typically over aone to two-year period). The Rating Outlook may either be :

POSITIVE which indicates that a rating may be raised;

NEGATIVE which indicates that a rating may be lowered;

STABLE which indicates that a rating is likely to remain unchanged; or

DEVELOPING which indicates that a rating may be raised, lowered or remain unchanged.




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Shaheen Traders FINAL,06!07!2011

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