Press Release

JCR-VIS Maintains Entity Ratings of Crescent Steel and Allied Products Limited
 

Karachi, May 29, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has maintained the entity ratings of Crescent Steel and Allied Products Limited (CSAPL) at ‘A+/A-2’ (Single A Plus/A-Two). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. Rating of the company’s 12 month commercial paper has been finalized at A-2 (A-Two).

Revision in rating outlook reflects weakening in order book on account of delay in implementation of a major pipeline project which is expected to impact profitability and cash flow profile till commencement of work on the project. Ratings draw comfort from CSAPL’s diversified operations (exposure to steel, textiles, capital markets and power sectors), low leveraged capital structure, adequate liquidity profile and strong corporate governance framework. The assigned ratings are, however, constrained by high business risk of the steel segment which comprises bulk of the company’s revenues.

Ratings also take into account the high business risk posed by the steel sector. Cyclicality in sales is a significant risk particularly for large diameter pipe manufacturers, given the reliance on public sector projects. Major project announced and for which tendering is expected over the next one year include 1100km North-South gas pipeline (RLNG III). As the only major large diameter spiral pipe manufacturer in the country, the company is well-positioned to capture a chunk of the new orders as they occur. Delay in commencement of work on RLNG III pipeline is a significant business risk factor. Other key risk factors include rising HRC prices post bid submission and threat of dumping particularly from China.

Assigned ratings incorporate the financial risk profile of the company reflected by conservative financial policy as evident from low leveraged capital structure, adequate debt servicing capacity and liquidity indicators. Despite pressure on margins due to rising HRC prices, profitability of the company was supported by sizeable investment income. Materialization of order pipeline and income from investments will determine quantum of future profitability. Cash generated from operations and investment & dividend income will result in sufficient liquidity to cater to upcoming debt payments. Moreover, liquid investments carried on balance sheet also support assessment of company’s liquidity profile. The investments are however subject to market risk.

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


Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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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 2018 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