Amreli Steel’s expansion project to enhance capacity to 600,000 tpa by Feb-19: PACRA

December 19, 2018 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained entity ratings of Amreli Steels Limited at ‘A’ for long-term and ‘A1’ for short-term, with a stable outlook forecast.

According to the press release, the ratings reflect Amreli Steels' healthy business profile on account of the company’s market positioning in the industry. The company is currently working on an expansion project which would result in capacity enhancement to 600,000 tpa from 400,000 tpa of billets by Feb-19.

Amreli has already achieved 605,000 tpa of re-rolling capacity in Apr-18 and average 400,000 tpa billets capacity in Aug-17. During the first quarter of FY19, the board of directors has approved the second phase of expansion of rolling capacity from 605,000 tpa to 1,105,000 tpa, subject to the approval of technical feasibility and successful financial close.

Capacity additions by competitors is likely to heat up competition, herein, effective and timely management of capacity expansion remains important for Amreli. The company has stepped up efforts to ensure supportive supply chain to utilize enhanced capacities in a timely manner.

Meanwhile, regulatory protection to the finished product (rebar) is an added advantage for the sector. The company’s changes to organizational structure are likely to bring enhanced efficiency. The business profile of the company remained healthy on the back of enhanced capacity, improved business volumes.

However, margins declined, an industry wide phenomenon, primarily driven by increased international scrap prices. The leveraging might increase in medium term in pursuit of expansion. The ratings draw comfort from strong business acumen of Amreli Steels' sponsors - Akberali Family.

The ratings are dependent on the management's ability to sustain its business profile while benefiting from positive demand fundamentals. Utilization of enhanced capacity and upholding business margins is vital. Moreover, prudent management of financial affairs remains important

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