Press Release
VIS Maintains Ratings of International Industries Limited
Karachi, October 20, 2020: VIS Credit Rating Company Limited has maintained the entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) assigned to International Industries Limited (IIL). The medium to long-term rating of ‘AA-’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned ratings has been placed on ‘Rating Watch-Negative’ status. Previous rating action was announced on June 21, 2019.
The rating takes into consideration the consistent slide in profitability indicators; in FY20, IIL’s gross margin dropped from 10.9% to 7.2%, which was notably lower on a timeline (FY18: 12.7%; DY17: 16.9%). Given the most recent drop, the company’s FFO turned negative and DSCR fell below 1x. As the economy recovers, topline is likely to recover in tandem. Nevertheless, in view of the market dynamics, the pressure on margins is expected to persist. The cash flow coverage ratios are expected to slowly recover. Given equity erosion, on account of the loss incurred, the company’s gearing and leverage have also trended up and stood on the higher side. Accordingly, the outlook on ratings has been revised to ‘Rating Watch-Negative’.
The assigned ratings continue to incorporate IIL’s market positioning in the steel pipe industry and the Group’s consolidated position in Pakistan’s steel industry. The ratings take impetus from the Group’s strong operational track record. Going forward, capitalization ratios are expected to improve in line with better sales projections and the resultant improvement in profit. Nevertheless, gearing & leverage are expected to remain on the higher side, at least in the medium term horizon.
The steel industry has been notably affected by the pandemic-induced slowdown; with the second wave of Covid-19 already starting in EU, there is uncertainty with regards to future industry trends. VIS will continue to monitor key financial trends of IIL, and ratings maybe revised, if further deterioration is noted.
For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) or Ms. Muniba Khan (Ext: 215) at 021-35311861-71 or fax to 021-35311872-3.
Javed Callea
Advisor
Applicable Rating Criteria: Industrial Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx