Press Release

VIS Assigns Initial Entity Ratings to Naveena Steel Mills (Private) Limited

Karachi, July 25, 2023: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings to Naveena Steel Mills (Private) Limited (NSML) of ‘A-/A-2’ (Single A Minus/A-Two) with a ‘Stable’ outlook. The long-term rating of ‘A-’ signifies good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ indicates good certainty of timely payment. Liquidity factors and company fundamentals are considered sound. Access to capital markets is good. Risk factors are small.

The business and financial risk of the steel sector has increased on a timeline basis emanating from import restrictions, limited raw material coverage, exchange rate volatility, and higher interest rates, resulting in inflationary pressures and a decline in demand in the construction, engineering, and infrastructure development projects. The ongoing situation is expected to persist in the mid-term impacting the financial risk profile of companies across the sector.

NSML commenced operations in FY21 and is a wholly owned subsidiary of Naveena Group (Pvt.) Limited, which has diversified presence in the textile, energy, and construction sectors. The Company is engaged in the production of steel bars and billets and currently operates a steel melting and rerolling plant based on direct rolling technology. The assigned ratings take into consideration the sound profile of the Company’s sponsors and their experience across several industries for over three decades. The ratings also factor in the technologically advanced production facilities at its manufacturing plant which allows the Company to be more energy-efficient and produce high product yield. Additionally, current expansion in the melting capacity, which is expected to be completed in the ongoing year FY24, will result in completely in-house billet making capability. Furthermore, installation of a 5MW solar power project will also help the Company’s cost-saving going forward.

NSML’s financial risk profile exhibited weakening in 9MFY23 with reduction in the topline as demand contracted in the current adverse macroeconomic environment. Gross margins were reported higher in 9MFY23 due to inventory gains earned in the third quarter. However, net margins shrunk due to elevated finance costs. In line with the same, cash flow coverages against outstanding obligations also depict weakening. Leverage indicators have also risen on a timeline basis given higher debt utilization to meet capital expenditure and working capital requirements, albeit remaining within manageable levels. While ratings draw comfort from sponsor support, they remain sensitive to improvement in overall financial risk profile of the Company.

For further information on this rating announcement, please contact Ms. Asfia Amanullah (Ext: 212) or the undersigned (Ext: 201) at 021-35311861-71 or email at info@vis.com.pk.



Sara Ahmed
Director

VIS Entity Rating Criteria: Corporates (May 2023)
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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .