Press Release

VIS Assigns Initial Ratings to Faizan Steel

Karachi, January 10, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B Plus/A-Two) to Faizan Steel (‘FS; or ‘the Firm’). Outlook on the assigned ratings is ‘Stable’. Long term rating of ‘BBB+’ denotes adequate credit quality with reasonable protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals.

FS is principally engaged in manufacturing and supply of steel products. Manufacturing plant of FS is equipped with a fully automatic steel re-rolling mill, a high end melt shop, and a 230 ft. cooling bed with the capacity of producing over 500 tons a day. Bars are manufactured using in-house manufactured steel billet conforming to American, Chinese and British standards. FS’s product range includes Premium bars, Seismic bars, Optimum bars, Heavy Duty bar and C-bar.

The assigned rating incorporates FS’s operational track record and sponsor’s long standing association with the steel industry, including stakes in upstream industries like ship breaking. Ratings incorporate the quantum of business revenues and profitability margins of FS. The Firm’s revenue base has grown notably in past 2-year period (FY20-21), as indicated by topline CAGR of 69% during this period. FS’s gross margins have posted consistent improvement, with the exception of FY21, wherein a drop was noted being attributed mainly to significant depreciation of local currency, uptick in international scrap steel prices and stiff competition in the market. Going forward, growth in topline for FY22 is expected to remain strong.

The financial risk profile of FS poses a rating constraint, given elevated gearing and increasing debt financing tilt of the capital structure. Furthermore, exposure to credit risk is also notable, given sizable receivables, albeit the same has trended down in 5M’FY22. In line with growth in business revenues, cash flows have improved, albeit as the Firm remains in growth phase, debt is also rising and resultantly cash flow coverages are constrained. Nevertheless, financing is limited to running finance lines while long term debt is minimal, which translates in a comfortable DSCR. The Ratings are constrained FS’s operational status as a Partnership Firm. Change in operational status to a sole proprietorship or a listed entity could bode well from a ratings purview. The assigned ratings incorporate projected growth in topline and is dependent on maintenance of business & financial risk metrics.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-71 or Mr. Arsal Ayub, CFA at 021-35311861-70





Faryal Ahmed Faheem
Deputy CEO

Applicable Rating Criteria: 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 .