Karachi, January 13, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to International Industries Limited (IIL). Outlook on the assigned ratings is ‘Stable’.
The assigned ratings incorporate the company’s position as the largest tube and pipe manufacturer in the country. Moreover, the extensive experience and track record of sponsors in the steel sector is also a key rating driver. Ratings also reflect stable and improving financial profile of IIL and strong corporate governance framework.
Steel sector is characterized by high business risk given the cyclical nature of the industry, volatility in steel prices and threat of dumping particularly from China. Duties on pipe imports along with IIL’s strategy of keeping margins at competitive levels has facilitated in partly mitigating competition from imports. JCR-VIS will continue to track changes in operating environment and any adverse changes resulting in weakening in financial profile may trigger a rating review.
Going forward, organic growth in traditional products along with sales from commissioning of Stainless Steel & large diameter steel pipe mill and Pakistan’s largest HDPE pipe extruder are expected to be the growth drivers for revenues. Moreover, current low per capita steel consumption, favorable demand outlook from industries (autos, construction and pipelines) catered to by IIL and higher sales from the plastic segment with commissioning of PPRC fittings which will supplement PPRC pipes currently being manufactured by IIL is expected to contribute positively to sales. Gross margins of the company witnessed improvement during FY16 on account of inventory gains translating into higher profitability. With raw materials representing the major cost component and significant volatility in prices, efficient procurement, inventory management and volumetric off-take are critical to gross margins. Profitability of IIL is supported by increase in dividend income from subsidiary ISL which is expected to continue to expand and grow.
IIL is currently Pakistan’s largest manufacturer of steel and plastic pipe with an annual pipe manufacturing capacity of 500,000 tons. Sales mix of IIL is diversified in terms of local and export sales and comprises multiple products from two segments (steel and plastic). Local sales witnessed growth during FY16 and represent the major portion of company’s sales. Over the last five years, export sales (in volumetric terms) have ranged between 30%-40% with the company exporting to 60 countries across five continents. A 4 MW In-house co-generation plant meets the power related needs of the company. Excess power generated is sold to K-Electric Limited.
For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) or the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.
Jamal Abbas Zaidi
Applicable Rating Criteria: Industrial Corporates (May 2016)
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