Press Release

JCR-VIS Assigns Initial Ratings to Frontier Foundry Steel (Private) Limited

Karachi, February 11, 2019: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Frontier Foundry Steel (Private) Limited (FFSPL). Outlook on the assigned ratings is ‘Stable’. Long term rating of A- reflects good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. Short term rating of A-2 reflects good certainty of timely payment, sound liquidity factors and company fundamentals, and good access to capital markets with small risk factors.

FFSPL deals in manufacturing of billets and reinforcement bars (rebars). The company has a mid-sized installed capacity of rebars with plants present in the cities of Peshawar and Lahore. Lahore plant commenced operations in April’2018. Capacity utilization of the plant has remained on the higher side during FY18. The company is in the process of expansions which will double its cumulative billets and rebar capacity at Peshawar and Lahore. Post expansion, the company will operate as a direct rolling mill which is likely to result in higher sales volumes and improved profitability amid enhanced plant efficiencies. The expansion is being funded through a mix of debt and equity.

The assigned ratings to FFSPL incorporate its improving financial risk profile as evident from conservative capital structure, and adequate cash flows in relation to outstanding obligations (largely comprising short term borrowings). Ratings also reflect improvement in profitability indicators supported by higher turnover and enhanced efficiencies from the plant. Management expects revenues and margins for FY19 to double vis-à-vis FY17 levels. Moreover, focus on improvement of corporate governance framework is also an important rating driver. Ratings are dependent on maintaining prudent leverage indicators in the backdrop of notable capex being undertaken by FFSPL, improving margins and timely materialization of the expansion project.

Overall sectoral risk is considered moderate to high given the fragmented & cyclical nature of the industry, emerging competition post capacity expansion by major players, and threat of dumping from countries on which duties have not been imposed and high reliance on Government protection. While dumping margins have reduced given significant rupee depreciation, risk of dumping from China is considered moderate given supply constraints due to ban on use of induction furnace in China. Going forward, Demand growth is expected to remain subdued 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 units.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-71 or Mr. Maimoon Rasheed at 042-35723411-13.

Jamal Abbas Zaidi

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited 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.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.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited