JCR-VIS Reaffirms Entity Ratings of Aisha Steel Mills Limited

October 03, 2018 (MLN): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Aisha Steel Mills Limited (ASL). Outlook on the assigned ratings is ‘Stable’.

The previous rating action was announced on October 05, 2017.

As per the report, the assigned ratings to ASL are underpinned by financial profile and demonstrated support of the Company’s major sponsor, Arif Habib Group.

The agency added that the Ratings also incorporate improved operating performance, profitability profile and industry dynamics post imposition of anti-dumping duty (ADD) on imports from China and Ukraine.

“Ratings are dependent upon the business risk of the flat steel sector and gearing levels of ASL which are expected to remain elevated over the rating horizon as debt drawdown for expansion materializes,” stated the official statement released.

Report indicates that, completion of planned expansion and realization of projected financial indicators post expansion in a more competitive market including improvement in cash flow coverage will be important, revealed JCR-VIS.

According to the report, overall demand for flat steel products has depicted healthy double digit growth over the last three years with sales increasing by 17% during FY18. Demand growth has been driven by the auto, consumer durables, pipes and construction segment

The rating agency JCR-VIS expects demand growth to slow down in the short-term in line with slower economic growth in the backdrop of increasing interest rates and sizeable current account deficit.

Moreover, with increasing capacities coming online competition amongst existing players is expected to intensify. Tapping export market in order to deploy surplus capacities is also considered important.

The press release further indicates that, Imposition of 25% duty on import of steel products into United States is expected to act as a challenge in this regard. Given the sizeable exportable surplus in steel producing countries, steel prices are expected to witness pressure going forward.

ASL posted strong operating performance during FY18 with capacity utilization reported at 99%. Increase in capacity utilization along with improvement in prime margins translated into healthy increase in profitability levels during FY18.

The official statement concluded that, despite increase in equity base of the company due to retained profits, gearing continues to remain on the higher side.

Moreover, with improvement in cash flows and extended repayment terms for existing long-term debt, debt servicing ability of the company is considered strong.

Given the sizeable depreciation of PKR against USD, overall expansion project cost is projected to depict double digit growth. Management plans to fund cost overruns through internal cash flows, says the rating agency.

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