Press Release

VIS Credit Rating Company Reaffirms Entity Ratings of Aisha Steel Mills Limited

Karachi, March 10, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Aisha Steel Mills Limited (ASL). Outlook on the assigned ratings is ‘Stable’. Long term entity rating of ‘A-’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-2’ indicates good certainty of timely payment, sound liquidity factors and company fundamentals. Access to capital markets is good. Previous rating action was announced on January 15, 2021.

The assigned ratings to ASL are underpinned by demonstrated support of the Company’s major sponsor, Arif Habib Group, while also incorporating the Company’s market positioning as one of the only two local players in the flat steel industry. ASL’s rating factors in the business risk of the flat steel industry, which is considered high, given the sensitivity to changes in exchange rate, interest rate and commodity prices. The long-term demand outlook for steel products remains positive, given Pakistan’s low existing steel consumption per capita. Nevertheless, short to medium term outlook is considered moderate due to potential slowdown in construction and automobile industries, which is likely to happen due to restrictions on car financing and tightening in monetary policy.
As a result of favorable government policies and gradual economic recovery, ASL posted significant growth in its topline during FY21 and 1HFY22 supported by the ability to pass increase in raw material prices. Due to the volatile nature of steel prices in the international market, margins showed substantial improvement in FY21 yielded by inventory gains. Subsequently, commodity prices have declined. However, margins in 1HFY22 were impacted due to significant lead time between material ordering and delivery of finished product. Going forward, with the expected rise in finance cost, improvement in net margins is deemed to be important to ease the pressure off bottom-line.

Cash flow coverage indicators of the company improved in FY21. The same witnessed pressure in the outgoing year due to elevated borrowings to finance working capital requirements; however, inventory was available against elevated working capital. In lieu of the expansion plan, strengthening cash flow coverages going forward will be important to maintain assigned ratings. Improvement in capital structure was noted during FY21 due to a substantial increase in equity base through profit retention. However, leverage indicators witnessed a jump in the ongoing year due to higher quantum of short term borrowings along with decline in equity base owing to dividend payout. Improving capitalization profile under the current pressure in the industry and planned debt drawdown for expansion is considered important.

The assigned rating remains dependent on improvement in profitability, cash flow coverage indicators, and capitalization metrics in line with the threshold for the assigned rating.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext: 207) at 021-35311861-71 or email to info@vis.com.pk.



Sara Ahmed
Director Ratings

Applicable Rating Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .