VIS reaffirms entity ratings of Aisha Steel Mills

December 23, 2024 (MLN): VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Aisha Steel Mills Limited (PSX: ASL) at ‘BBB+/A2’ (Triple B plus/A Two).

A medium to long-term rating of 'BBB+' indicates adequate credit quality; Protection factors are reasonable and sufficient.

Risk factors are considered variable if changes occur in the economy.

A short-term rating of 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors.

Outlook on the assigned rating remains ‘Stable’.

The previous rating action was announced on January 01, 2024.

Aisha Steel Mills Limited ('ASL' or 'the Company') was incorporated in Pakistan in 2005 as a public limited company, commencing commercial operations in 2012.

The Company is involved in the manufacturing and sale of cold rolled coils and hot-dipped galvanized coils.

ASL, part of the Arif Habib Group, represents a significant private sector investment in the local flat-rolled steel industry, Situated at Port Qasim, Karachi.

The Company meets both local demand and exports to various international destinations, including North America, Asia, Africa, Europe, and the Middle East.

ASL derives demand from the automobile, engineering, and appliances industries.

ASML is part of the Arif Habib Group, a leading industrial and financial conglomerate in Pakistan.

The Group holds interests in securities brokerage, investment and financial advisory, private equity, investment management, fertilizer manufacturing, cement, steel, real estate, energy, and textile mills.

Assigned ratings incorporate the business risk profile of the flat steel sector, characterized by its high to medium-risk nature.

In FY24, Pakistan's flat steel sector continued to face challenges from weak domestic demand, fluctuating international steel prices, and rising import competition.

A significant development was a sharp reduction in domestic steel prices driven by declining global raw material costs on the back of reduced demand from China.

Margins in Q1, 2025 were consequently impacted.

The ratings are supported by strong sponsor support evident from time to time equity support provided to the Company via sponsor loans.

Ratings remain underpinned by a continuation of this support, going forward.

Assigned ratings also consider the financial risk profile of the Company, which reflects moderate profitability supported by higher volumetric growth in both local and export markets relative to last year.

However, margins have remained under pressure on account of inventory losses, impacting profitability. The capitalization profile is also supported by the sponsor’s support.

Liquidity remains constrained, as reflected in current ratios and operational cash flow gaps, while debt coverage and servicing are under pressure due to strained margins.

Going forward, ratings remain sensitive to improvements in macroeconomic conditions and measures to curb import competition, which are expected to support demand recovery and normalize margins.

The assigned ratings are contingent on management’s ability to maintain operational efficiencies and improve profitability, liquidity, and coverage metrics, alongside sustained sponsor support to bridge financial gaps.

The outcome of ongoing negotiations with the lenders will remain important for ratings.

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