Press Release
VIS Reaffirms Entity Ratings of Faizan Steel
Karachi, January 31, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the 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; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Previous rating action was announced on January 10, 2022.
Faizan Steel deals in manufacturing and sale of steel bars with the plant being equipped with a fully integrated steel re-rolling mill, a high-end melt shop, and a 230 ft. cooling bed. The assigned ratings take into account FS’s operational track record and sponsors’ long standing association with the steel industry, including stakes in upstream industries like ship breaking.
Ratings also take into account the business risk of the long steel sector, which is considered relatively high because of the sensitivity to changes in exchange rate, and volatile nature of raw material prices. Furthermore, high pressure prevails on the business risk profile of the sector given subdued demand dynamics in the local industry arising as a result of inflationary pressures along with raw material supply constraints.
Assessment of financial risk profile depicts weakening across profitability, liquidity and capitalization indicators. Significant increase in topline of the Firm was attributable to a mix of higher average selling price and volumetric growth due to recent capacity expansion. Margins have compressed due to higher input costs and elevated financial charges. With debt gettng more than doubled in the review period largely to finance working capital needs, gearing indicators and liquidity metrics depict pressure. Going forward, amidst subdued demand and input supply constraints, improvement in profitability profile remains important. Ratings remain sensitive to improvement in leverage levels and cash flow coverages.
For further information on this rating announcement, please contact Ms. Asfia Aziz (Ext: 212) or the undersigned (Ext: 207) at 021-35311861-71.
Sara Ahmed
Director
Applicable Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf
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