Press Release

VIS Assigns Initial Ratings to Mannan Shahid Forgings Limited

Karachi, April 18, 2019: VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A-/A-2’ (Single A-Minus/A-Two) to Mannan Shahid Forgings Limited (MSFL). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned rating is ‘Stable’.

MSFL manufactures a wide range of high-precision forged, heat-treated, and machined components from hot-rolled steel bars with varying grades of carbon and steel alloy. The company generates nearly half of its total sales from exports and the remaining from the local market. The assigned ratings take into account a moderate business risk profile, underpinned by experienced sponsors and established relations with the customers. Barriers to entry in the forging industry are high because of capital intensive nature of machinery, high setup costs, longer payback time and the requirement of precise technical expertise. Moreover, switching cost are high due to costs involved in initial development of products with new suppliers and a long product development time. This explains the existence of a limited number of competing forging companies with relevant capacities and technical expertise to manufacture high-precision components for original equipment manufacturers (OEMs). This fact is also reflected in high customer retention rate attained by MSFL.

The ratings draw comfort from steadily growing sales and profitability emanating from high customer satisfaction levels and increasing demand for existing and new components. The ratings also factor in sound liquidity position and coverages and low leverage indicators; absence of long-term borrowings and low burden of short-term borrowings. Although, the company’s local sales are prone to dynamics of Pakistan’s agriculture sector, the company has significantly reduced its single customer/market risk by inducting new customers/components from advanced industrial economies, such as, Germany, Italy, France, UK, USA, and Brazil. Steel price fluctuations are passed on to the customer and therefore, the risk to margins is well hedged. The ratings are sensitive to any notable increase in leverage indicators and mobilization of long-term debt over the foreseeable future.

For further information on this rating announcement, please contact undersigned or Mr. Maimoon Rasheed at 021-35311861-70/042-35723411 or fax to 021-35311872-3.

Javed Callea

VIS Entity Rating Criteria Industrial Corporate (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 .

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