Lahore, July 04, 2023 (PPI-OT): Jamal Pipes Industries (Pvt.) Limited (“The Company or JPI”), a family operated business, is engaged in manufacturing of pipes and allied products for four decades. The Company's product slate includes black line pipes, galvanized line pipes, variety of poles (octaconical poles, tubular poles and street light poles and guardrails. Around 47% is contribution from poles while remaining 53% arises from pipes and guardrails. Diversification in product slate is considered positive while further strengthening of revenue from each product would reduce concentration and add cushion to business risk profile. The business and financial risk of the steel sector has increased due to import restrictions, limited raw material coverage, soaring raw material prices, exchange rate volatility, and higher interest rates. The ongoing situation is expected to persist, however companies, keeping track of leveraging, finding alternative raw material and able to diversify their portfolio are able to sustain the current pressures.
The Company in line with the industry trend faced a volumetric decline though, order book remains in comfortable position, as it enjoys a long association from big corporate clients. During the period 9MFY23, JPI sales revenue clocked to PKR ~1,880mln (FY22: PKR ~3,097mln). The gross profit and net profit for the period 9MFY23 stood at 7.9% - PKR ~149mln and 1.2% - PKR ~22mln (FY22: 8.5% - PKR ~263mln and 2.3% - PKR ~71mln) respectively. The decline in revenue and margins was due to the increase in Hot Rolled Coil (HRC) prices - the basic raw material, along with inability to establish LCs, increased energy prices, policy rates and slowdown in economic growth. However, owing to better retention prices JPI manages to clamp it margins. JPI manages its working capital through the mix of internal cash generation and short term borrowings. As of 9MFY23 leveraging stood at 15.1% (FY22: 18.3%: FY21: 43.9%) constituting 100% short term borrowings - inherent need of the business model. Sufficient cushion in working capital lines are available.
In order to cater the macro economic challenges JPI prefers to source expensive raw material from local suppliers on extended credit terms and relies less on imports. The ratings reflect an adequate market presence of JPI in a highly fragmented industry. The Company has an explicit policy of not raising any long-term debt, therefore, the debt book only contains of short-term borrowings. The ratings are dependent upon the Company’s ability to sustain and improve its business profile in the wake of challenges in current diluted economic scenario. Herein, effective and prudent management of financial risk indicators and improvement of business margins through operational efficiencies remain important.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com
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