Press Release

JCR-VIS Assigns Initial Entity Ratings to Razaque Steels (Private) Limited

Karachi, November 19, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial long term entity rating of ‘BBB-’ (Triple B Minus) and short term rating of ‘A-3’ (A-Three) to Razaque Steels (Private) Limited (RSPL). Long term rating of BBB- signifies adequate credit quality with protection factors being reasonable and sufficient while risk factors are considered variable. Short term rating of A-3 signifies satisfactory liquidity factors and with expected certainty of timely payment. Outlook on the assigned ratings is ‘Stable’.

RSPL is engaged in the business of manufacturing and sale of billets and steel bars through its production facilities located at Hub-Balochistan and S.I.T.E-Karachi, respectively. Both facilities have a dedicated feeder to ensure uninterrupted full load power supply. Capacity utilization levels of both units were reported on the higher side during FY18. The company primarily caters to institutional clients.

Assigned ratings take into account overall high sectoral risk borne by the long steel sector given fragmented, cyclical, and competitive nature of the industry. However, the same is expected to be partly mitigated by healthy long-term demand outlook as evident from investment in development of infrastructure & power generation, and significant duty protection for local players. Going forward, JCR-VIS expects demand growth to slow down in the short-term in line with slower economic growth in the backdrop of increasing interest rates and sizeable current account deficit. However, demand outlook over the medium to long-term is expected to remain healthy given focus of the government on construction of dams and housing sector.

Assessment of financial risk profile incorporates improving profitability and liquidity indicators of the company due to successful commissioning of backward integrated operations (billets manufacturing facility) during FY18, higher volumetric sales and average sales prices. However, quantum of profitability and cash flow is limited due to lower gross margins vis-à-vis integrated players. Liquidity profile of the company is considered adequate in view of satisfactory debt servicing and aging of trade debts which remains with in manageable levels. Capitalization levels have improved over the years through profit retention; however gearing and leverage indicators have increased significantly on a timeline basis due to higher utilization of short term borrowings to fund working capital requirements. Dividend payouts have historically remained limited and management does not plan to mobilize long-term borrowing to fund expansion. Overall board structure and oversight has room for improvement. Additionally, development of a succession plan is also considered important.

For further information on this rating announcement, please contact the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.

Jamal Abbas Zaidi

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 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