Press Release

VIS Reaffirms Entity Ratings of Faizan Steel

Karachi, December 30, 2024: VIS Credit Rating Company Limited (“VIS”) has reaffirmed the entity ratings of Faizan Steel (“FS” or “the Firm”) at ‘BBB+/A2’ (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 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned rating remains ‘Stable’. Previous rating action was announced on January 31, 2024.

FS is a partnership concern, engaged in the manufacturing and sale of steel bars. The Firm’s manufacturing plant is located at S.I.T.E area, Karachi and is equipped with a fully automatic direct steel re-rolling mill, a high-end melt shop, and a 230 ft. cooling bed. FS has an integrated setup in place, where shredded scrap is used to manufacture steel billets, and is then directly converted into bars. FS’s product range includes Premium bars, Seismic bars, Optimum bars, Heavy Duty bar and C-bar.

Assigned ratings incorporate the business risk profile of the steel bar industry in Pakistan, characterized by high industry risk due to demand fluctuations, reliance on imported raw materials, and energy-intensive operations. Demand is closely linked to the construction sector, public infrastructure projects, and housing development, with government spending on infrastructure providing support. However, cyclical downturns in private construction activity, delays in public projects, inflation, and high interest rates adversely impact demand. The industry's dependence on imported raw materials exposes it to exchange rate risks and global price fluctuations, while rising energy costs and supply disruptions increase operational expenses. Competitive pressures further limit pricing flexibility, restricting the ability to pass on higher costs.

Assigned ratings also consider the financial risk profile of the Firm, characterized by declining topline revenue due to reduced sales volumes. While gross margins showed improvement, they remain vulnerable to inventory holding costs and energy price volatility. The net margins experienced a decline, reflecting the impact of increased finance costs from elevated interest rates and higher short-term debt utilization. The capitalization profile is constrained by elevated gearing and leverage ratios, primarily due to increased working capital needs. Liquidity metrics were stable, with the current ratio and short-term debt coverage ratios remaining aligned with the assigned ratings. However, coverage metrics have shown contraction due to increased finance costs.

Going forward, ratings will remain sensitive to the Firm’s ability to manage input cost volatility, energy expenses, and operational efficiencies. Sustained profitability and improvement in the liquidity and coverage profiles are important for maintaining the assigned ratings. Additionally, ratings will be underpinned by the management's ability to improve financial stability, including enhancements in capitalization metrics to be commensurate with assigned ratings.

For further information on this ratings announcement, please contact on 021-35311861-64 or email at info@vis.com.pk

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

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .