September 25, 2019: Pakistan Credit Rating Agency (PACRA) has assigned initial entity rating of ‘A-’ for long term to Amreli Steels Limited, while the short term rating is ‘A2’. Meanwhile the outlook forecasted on this rating is ‘stable’.
As per an official press release by the agency on this occasion, the ratings reflect squeezed margins and pressure on the profitability in some recent months. The performance trend line took a dip but the company curtailed loss in the recent quarter. It has good business profile on account of the company’s market positioning in the industry.
The Company produces two key products: i) steel billets, ii) rebars, including Grade 60 Deformed Steel bars and Xtreme bars (G-500W). The company has achieved capacity expansion of melting and rebar manufacturing capacity to 600,000 tpa and 605,000 tpa respectively. Rebar capacity will be further enhanced to 1,105,000; however, the project has been placed currently at halt due to the economic downturn. The company being 'Champion in selling Rebars' will not compromise on its footprint in the markets amid slow infrastructural activity in the country.
Steel industry dynamics reflects weakening with squeezing margins and surging raw material costs coupled with rupee depreciation. Meanwhile, regulatory protection to the finished product (rebar) is an advantage for the sector. The volumetric increase (from recently added capacity) improved topline but margins declined.
The financial risk profile witnessed dilution owing to decline in coverages attributable to sizable increase in finance costs.
Going forward, the management will focus on volumes and sustaining market share while aligning the financial matrix by raising fresh term loan to retire existing working capital lines. The ratings draw comfort from strong business acumen of Amreli Steels' sponsors – Akber Ali Family.
The ratings are dependent on the management's ability to uphold and improve its business vis-à-vis financial risk profile. Utilization of enhanced capacity and improved margins are vital. Moreover, prudent management of financial affairs remains important.
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