Press Release

VIS Credit Rating Reaffirms Entity Ratings of Mehboob Steel Pipe Industry

Karachi, December 30, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Mehboob Steel Pipe Industry (MSPI) at ‘BBB-/A-2’ (Triple B Minus/ A-Two). The medium to long term rating of ‘BBB-’ signifies adequate credit quality, protection factors are reasonable and sufficient. Risk factors are considered variable if change occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good and risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on January 10, 2022.

The ratings assigned to MSPI take into account the elevated business risk profile of steel and allied products sector in line with dampened demand due to the slowdown in construction and automobile industries. In view of the weak macroeconomic indicators of the country, high benchmark rates, political uncertainty, inflationary pressure, revised sovereign credit rating and restrictions imposed on quantity of imports of CKD kits, a significant demand slowdown in the automobile industry is forecasted. Demand in other CRC consuming sectors is also likely to weaken in tandem with depressed GDP growth. The business risk profile also incorporates fragmented nature of the sector accompanied by prevailing competition and price sensitivity of raw material to exchange rate. Assessment of financial risk profile incorporates decline in revenues based on volumetric decrease, slight dip in margins and increased leverage indicators on account of higher utilization of short-term borrowings. The company has a conservative capital structure with no reliance on long-term borrowings; moreover, the utilization of short-term funding is also cyclical in nature pegged with timing of bulk import orders made. The ratings take support from the company’s plan of not procuring long-term funding in the medium to long-term as no major capital expenditure is in the pipeline; any uptick in demand will be accommodated by the existing capacity. The liquidity profile in terms of cash flow generation and debt service coverage remains fair. The ratings derive support from equity injection made by the sponsors during the ongoing year to meet growing working capital requirements. However, elevated gearing levels relative to business risk and thin margins remains a rating constraint. Projected improvement in the same through consistent profit retention together with improvement in liquidity position is considered important from the ratings perspective.
For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at info@vis.com.pk.


Sara Ahmad
Director

Applicable rating criterion: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf


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