VIS maintains entity ratings of Agha Steel

December 22, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Agha Steel Industries Limited (PSX: AGHA) at ‘A’ for long-term and ‘A-2’ for short-term with a stable future outlook, the latest press release issued by VIS showed.

A medium to long-term rating of 'A' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy.

Whereas a short-term rating of 'A-2' indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound.

To note, the previous Rating action was announced on December 13, 2022.

The company was listed on the Pakistan Stock Exchange through an IPO in November 2020.

The central operation of ASIL’s business is focused on the production and sale of steel bars, wire rods, and billets.

AGHA’s registered office and manufacturing facilities are located at Port Qasim Authority, Karachi.

Assigned ratings incorporate a high business risk profile within the long steel industry. This is attributed to the industry's exposure to cyclicality and intense competition.

Despite these challenges, ASIL's technological advantage provides a level of support to the ratings.

Assigned ratings also consider the financial risk profile of ASIL.

In FY23, the company faced a contraction in the market due to macroeconomic constraints, leading to reduced demand and lower capacity utilization.

However, ASIL managed to achieve healthy gross margins through operational efficiencies with its technological efficacy.

The ongoing technological advancements, including the Electric Arc Furnace (EAF) and Mi. Da. Rolling projects contribute to ASIL's operational strengths.

The capitalization profile remains adequate, with slight pressure expected from the upcoming issuance of a green bond.

Liquidity and coverage profiles, while having experienced deterioration in FY23, recovered to adequate levels by 1QFY24.

Going forward, ratings will remain sensitive to the management's ability to achieve its projected plans.

Moreover, the improvement of key financial metrics such as capitalization, coverage, and liquidity to be commensurate with assigned ratings will also be an important consideration for future reviews.

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