VIS maintains entity ratings of CSAP

December 14, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Crescent Steel and Allied Products Limited (PSX: CSAP) 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. 

The previous rating action was announced on March 31, 2023.

CSAP, incorporated in 1983, is a steel pipes manufacturing entity publicly listed on the Pakistan Stock Exchange (PSX). Headquartered in Karachi, Pakistan, and has a large-diameter spiral welded steel pipes and coating facility.

The company's operations also include cotton spinning, billet manufacturing and energy generation. Its Energy Segment mainly supplies power to its Hadeed (billet) Division while any surplus energy is supplied to the national grid.

Ratings incorporate the high business risk profile of CSAP within the steel pipes and tubes industry. This sector is highly sensitive to economic cyclicality and exposed to fluctuations in exchange rates and international commodity prices.

The industry faces challenges such as low-capacity utilization, revenue and profitability issues, taxation challenges, higher financing costs, rupee depreciation, and increases in gas and electricity prices.

Assigned ratings also consider its diversified revenue stream with segments like steel, cotton, investment, and energy.

However, challenges in certain segments are also incorporated, such as continued losses and a halt in production of the billet and energy segment in FY23, affecting the overall business risk profile.

Despite diversification, the Company has faced difficulties in benefiting from its various segments, resulting in historically volatile profitability. CSAP's ratings derive support from its conservative debt profile, adequate liquidity and coverage profile.

The outlook has been revised from ‘Rating Watch – Negative’ to ‘Stable’ given the gradual realization of orders in hand into revenue.

Going forward, translation of orders in hand into sales up to the extent as planned by year-end FY24 will be an important consideration.

In addition, materialization of the remaining tonnage of expected tenders and sufficient fresh orders to sustain CSAP’s operations will be key sensitivity for future ratings.

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