Karachi, April 18, 2019 (PPI-OT): VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A-/A-2’ (Single A-Minus/A-Two) to Mannan Shahid Forgings Limited (MSFL). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned rating is ‘Stable’.
MSFL manufactures a wide range of high-precision forged, heat-treated, and machined components from hot-rolled steel bars with varying grades of carbon and steel alloy. The company generates nearly half of its total sales from exports and the remaining from the local market. The assigned ratings take into account a moderate business risk profile, underpinned by experienced sponsors and established relations with the customers.
Barriers to entry in the forging industry are high because of capital intensive nature of machinery, high setup costs, longer payback time and the requirement of precise technical expertise. Moreover, switching cost are high due to costs involved in initial development of products with new suppliers and a long product development time. This explains the existence of a limited number of competing forging companies with relevant capacities and technical expertise to manufacture high-precision components for original equipment manufacturers (OEMs). This fact is also reflected in high customer retention rate attained by MSFL.
The ratings draw comfort from steadily growing sales and profitability emanating from high customer satisfaction levels and increasing demand for existing and new components. The ratings also factor in sound liquidity position and coverages and low leverage indicators; absence of long-term borrowings and low burden of short-term borrowings.
Although, the company’s local sales are prone to dynamics of Pakistan’s agriculture sector, the company has significantly reduced its single customer/market risk by inducting new customers/components from advanced industrial economies, such as, Germany, Italy, France, UK, USA, and Brazil. Steel price fluctuations are passed on to the customer and therefore, the risk to margins is well hedged. The ratings are sensitive to any notable increase in leverage indicators and mobilization of long-term debt over the foreseeable future.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: http://jcrvis.com.pk/