Press Release

JCR-VIS Assigns Initial Entity Ratings to Aisha Steel Mills Limited

Karachi, October 05, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Aisha Steel Mills Limited (ASL). Outlook on the assigned ratings is ‘Stable’.

ASL is involved in the principal business of manufacturing and selling Cold Rolled Coil (CRC) in the country. The current production capacity stands at 220,000 MT and represents around 30% of the local CRC capacity. In order to cater to rising demand, ASL plans to increase installed capacity to 700,000 MT. The proposed expansion has a cost of Rs. 5.4b and will be funded through a mix of debt (60%) and equity (40%). Enhanced capacity will also include a galvanized line with a capacity of 250,000 tons and facilitate in diversifying sales mix.

The assigned ratings to ASL are underpinned by financial profile and demonstrated support of Arif Habib Group. Ratings also incorporate improving business risk profile of ASL post imposition of Anti-Dumping Duty (ADD), increase in capacity utilization levels and healthy demand outlook for industries catered by ASL. Financial profile has also witnessed improvement with increase in cash flows in relation to outstanding obligations and decline in leverage indicators.

JCR-VIS considers steel sector in general and flat steels sector in particular to comprise high business risk given the dependence on imports for major raw material and significant volatility in HRC- CRC margins together with threat of dumping. Dumping risk has been partly mitigated by imposition of ADD on imports from China (CRC and Galvanized products) and Ukraine (CRC); however, dumping from countries on which ADD has not been levied remains a risk. Demand outlook for the sector benefits from widespread product usage and healthy sales growth forecast for industries (autos, consumer durables & construction) catered by ASL. Post expansion by both local players, excess capacities coming online may intensify competition and necessitate tapping export market to enhance capacity utilization levels.

Profitability of the company has posted growth in FY17 on the back of higher production & sales, increase in prime margins and reduction in finance cost. Given that the company is expected to operate at high utilization levels during FY18, prime margins will be the single most important factor in determining quantum of profits. Post capacity expansion, profitability and cash flows are projected to depict healthy growth on the back of increased sales volumes. Capitalization levels of the company have strengthened on a timeline basis due to increase in equity base resulting in declining leverage indicators. However, gearing continues to remain on the higher side. Besides improving cash flows, debt servicing is projected to remain adequate due to extended repayment period on long term debt that the company enjoys.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Mr. Javed Callea

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited