Press Release

VIS Reaffirms Entity Ratings of Frontier Foundry Steel (Private) Limited

Karachi, February 22, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Frontier Foundry Steel (Pvt.) Ltd. (FF Steel) at ‘A/A-1’ (Single A/Single A-One). Medium to long-term rating of ‘A’ denotes good credit quality coupled with adequate protection factors; risk factors may vary with possible changes in the economy. Short-term rating of ‘A-1’ indicates high certainty of timely payment; excellent liquidity factors supported by good fundamental protection factors and minor risk factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 01, 2021.

Ratings reaffirmation reflects FF Steel's strong operational history and established presence in the north and central regions of Pakistan. The completion of vertical integration project at the Lahore plant in Nov’22, which includes in-house billet production, is noted as a positive development that is expected to yield significant cost savings. Additionally, the company’s venturing into non-ferrous segment, with establishment of an export-oriented production unit for copper ingots in Gujranwala (operations commenced in June'22) is also viewed positively, as it will aid in diversifying revenue streams.

Business risk is elevated due to uncertainties surrounding the imposition of import restrictions resulting from foreign exchange availability constraints, continued high interest rate environment, rising fuel and electricity costs, economic and political uncertainties, and the impact of recent floods, all leading to noticeable reduction in infrastructure development projects and overall construction sector demand. Ratings are constrained by current weak macroeconomic environment globally and locally.

Revenues have noted robust growth over the last two years driven by capacity increase and unprecedented price hikes of rebars. However, timeline reduction in margins and elevated leverage with high policy rates may impact the earnings profile going forward. Moreover, recent uptick in inventory holdings and debtor days has resulted in stretched working capital cycle, which may lead to build up of liquidity pressures as well as margin erosion arising out of higher financial charges with increased utilization of short-term debt. Maintaining satisfactory margins, particularly net margin, and leverage metrics will be crucial from a ratings perspective.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 206) or the undersigned (Ext. 201) at 021-35311861-70 or email at info@vis.com.pk



Javed Callea
Advisor

VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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