Press Release
VIS Maintains Entity Ratings of Faizan Steel
Karachi, January 31, 2024: VIS Credit Rating Company Limited (‘VIS’) maintains entity ratings of Faizan Steel ('FS’ or 'the Firm’) to 'BBB+/A-2' (‘Triple B plus/A-Two’). Medium to long term rating of 'BBB+' indicates adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short-term rating of 'A-2' indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings has been changed to Stable. Previous Rating action was announced on March 31, 2023.
Faizan Steel is a partnership concern operating in the steel manufacturing industry, specializing in production of steel bars. The Firm’s manufacturing facility is located in the S.I.T.E area of Karachi. FS has a fully automatic direct steel re-rolling mill, a sophisticated melt shop, and a 230 ft. cooling bed. With an integrated system, FS utilizes shredded scrap to create steel billets, which are then transformed into a variety of products such as Premium, Seismic, Optimum, Heavy Duty, and C-bars.
Assigned ratings incorporate the high business risk profile attributed to the long steel industry in Pakistan. This risk is underscored by the sector's exposure to economic cyclicality, foreign exchange rate fluctuations, volatility in international steel prices, and a challenging competitive environment. FY23 witnessed a constrained economic landscape marked by floods, inflation, currency depreciation, and dwindling foreign reserves, leading to a contraction in the GDP and reduced market size in the sector.
Assigned ratings also consider the financial risk profile of FS. In FY23, the Firm experienced demand constraints but managed to achieve growth in its top line due to higher selling prices. Similarly, FS achieved increased gross margins through inventory gains, supported by the prior year's buildup of raw materials and increased prices of finished goods in FY23. The capitalization profile remains elevated on account of higher working capital requirements. The liquidity and coverage profiles, though historically healthy, have exhibited deterioration in recent years, albeit remaining commensurate with assigned ratings.
Going forward, ratings will remain sensitive to the Firm’s ability to improve its capitalization profile and maintain its other key financial metrics in line with assigned ratings.
For further information on this ratings announcement, please contact Mr. Saeb Muhammad Jafri (Ext: 202) or the undersigned (Ext: 201) at 021-35311861-64 or email at info@vis.com.pk.
Javed Callea
Advisor
Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf