Karachi, August 25, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Frontier Foundry Steel (Private) Limited (FFSPL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. 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. The previous rating action was announced on February 11, 2019.

FFSPL deals in manufacturing of billets and reinforcement bars (rebars). The company has a mid-sized installed capacity of rebars with plants present in the cities of Peshawar and Lahore. Considerable increase in revenue has been witnessed over the past two years, though growth momentum was impacted lately by the outbreak of COVID-19. The ratings factor in strengthening of production capabilities with the installation of melting unit and BMR of re-rolling mill by end-October’2020 at Peshawar facility. The ratings draw comfort from notable improvement in margins due to partial consumption of in-house produced billets and cost efficiencies.

Liquidity profile of the company is supported by adequate cash flows generation in relation to outstanding financial obligations. Despite higher utilization of debt financing for capex and working capital requirements, leverage indicators are still considered on the lower side within the long steel sector. Going forward, the ratings are dependent on maintaining leverage indicators around current levels in the backdrop of notable capex being undertaken by FFSPL, improving margins and timely materialization of the expansion project.

The ratings are constrained by relatively low market penetration, rather smaller equity base, and moderate-to-high sectoral risk given the fragmented and cyclical nature of the industry and emerging competition post-capacity expansion by major players. While the demand for steel sector is showing signs of recovery on account of construction industry relief package and the government’s spending on construction of development projects, sustainability of demand over the long-term period will be important rating factor, going forward.

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: https://www.vis.com.pk/