Press Release

VIS Reaffirms Entity Ratings of Frontier Foundry Steel Limited

Karachi, July 24, 2024: VIS Credit Rating Company Limited (‘VIS’) reaffirmed entity ratings of Frontier Foundry Steel Limited ('FFSL’ or 'the Company’) to 'A/A-1' (‘Single A /A-One’). Medium to long term rating of 'A' indicates good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of 'A-1' indicates High certainty of timely payment; Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings remain ‘Stable’. Previous Rating action was announced on June 22, 2023.

FFSL has been incorporated in Pakistan as a private limited company since 1986. Subsequent to the year end, on 8 September 2023, the legal status of the Company has been changed from private limited company to public unlisted limited company. The principal activity of FFSL is manufacturing and sale of steel bars. The Company also operates copper extraction and ingot casting facilities as auxiliary business. The registered office of the Company is situated at 4-B, Sir Syed Road, Peshawar Cantt, Pakistan. The Company has two production plants for steel bar, one is situated at Plot # 166, Road B-7 Hayat Abad Industrial Estate, Peshawar, Pakistan and the other at Muhib Stop, 7 KM Manga Raiwind Road, Manga Mandi, Lahore. The Company has also one export-oriented production unit of copper ingots situated at Godown No. 4, Moza Rehman Chowk, Kacha Kialli, Gujranwala.

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. The review period witnessed a challenging 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 profitability, capitalization, liquidity, and coverage profiles. Despite increased selling prices, the Company's profitability was affected by constrained volumes and rising input costs, leading to inventory gains but declining net margins due to increased finance costs. The liquidity profile remained stable, though the cash conversion cycle lengthened, impacted by the longer collection period. The capitalization profile reflected a slight increase in gearing and leverage due to higher short-term borrowings to bridge the working capital gap. The coverage profile showed significant erosion but remained at adequate levels, influenced by higher short-term debt drawdowns and the resultant increase in financial burden.

Going forward, key business and financial risk indicators include the Company's ability to maintain its topline and margins amidst economic challenges and high energy costs. Management's plans to stabilize and improve systems and controls, manage capitalization metrics, and ensure adequate liquidity will be critical. The Company's ability to address the prolonged cash conversion cycle and maintain adequate coverage metrics will be vital for sustaining 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 .