VIS Assigns Initial Ratings to Ferrous Engineering Industry

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VIS Assigns Initial Ratings to Ferrous Engineering Industry

May 23, 2019

Karachi, May 23, 2019 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB-/A-2’ (Triple B Minus/A-Two) to Ferrous Engineering Industry (FEI). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable 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 and risk factors considered small. Outlook on the assigned ratings is ‘Stable’.

FEI was established by Mr. Muhammad Irshad in 2007 as a sole proprietorship. The principal business activity of FEI is import, processing and sale of hot rolled, cold rolled, galvanized and painted coils. FEI imports aforementioned steel products directly from the manufacturers located in China, Europe, Latin America, CIS and South Africa.

It is also involved in the manufacturing and sale of corrugated sheets, steel pipes, sheet piles, scaffoldings guard rails and steel channels. Other business interests of sponsor include a steel and allied products trading company incorporated in the U.K. and a steel services and fabrication unit located in the Kingdom of Saudi Arabia.

The assigned ratings take into account experience of sponsor in commercial steel trading and established relations with some major customers. The ratings draw comfort from the sustained growth in sales and stability in profit margins, with the expanding scale of trading and manufacturing operations. The ratings also factor in adequate liquidity position and manageable leverage indicators in the absence of long-term borrowings. Going forward, FEI intends to establish a steel melting and billet casting unit.

The project will be fully funded by owner’s capital thereby positively impacting leverage indicators. However, the ratings are constrained by FEI’s status as a sole proprietorship and its vulnerability to pricing and currency risks, increasing power costs and changing supply-demand dynamics of steel industry amid slowing economic growth. The sole proprietor is planning to convert FEI into a private limited company. The succession risk is considered low as two sons of the sole proprietor are actively involved in day to day business operations.

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

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