Press Release

VIS Credit Rating Company Maintains Entity Ratings of Aisha Steel Mills Limited

Karachi, October 31, 2019: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Aisha Steel Mills Limited (ASL). Long term entity rating of ‘A-’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-2’ indicates good certainty of timely payment, sound liquidity factors and company fundamentals. Access to capital markets is good. Previous rating action was announced on October 2, 2018.

The assigned ratings to ASL are underpinned by demonstrated support of the Company’s major sponsor, Arif Habib Group. Ratings also incorporate existing industry structure whereby ASL is amongst the only 2 local players in the flat steel industry. Recent commencement of enhanced Cold Rolled Coil (CRC) production capacity along with entry in Galvanized Coils (HDGC) market is expected to improve market position and diversify product offerings. While financial profile has remained stressed during FY19 and 1QFY20 given weakening in leverage indicators and decline in cash flow coverages, reaffirmation of ratings incorporates limited principal repayment to be made during FY20. Management expects significant uptick in sales volumes and reduction in quantum of working capital borrowings (primarily due to recent sharp decline in international HRC prices) to result in improvement in financial profile during FY20. Ratings remain dependent on materialization of projected sales volumes & margins, reduction in leverage indicators and mismatch on balance sheet and continued sponsor support.

VIS considers flat steels sector to comprise high business risk given the significant volatility in steel prices & HRC- CRC margins and threat of dumping. This along with weak demand dynamics expected to persist during FY20 and increased competition post capacity expansion by both players is expected to impact pricing power and profitability of the sector. However, local players expect sales to be supported by decline in imports (currently imports are sizeable) due to imposition of preliminary Anti-Dumping Duty (ADD) on flat steel imports from Russia (majority of imports in FY19 emanated from Russia) and Canada in addition to improved implementation of existing ADD. Synchronization of demand with increased supply and decline in quantum of imports is considered important, going forward. Given the high business risk of the flat steel sector, weak demand dynamics of industries catered to by ASL and elevated leverage indicators, Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’.

Financial risk profile depicted weakening during the outgoing year; however the management expects the same to improve significantly in the ongoing year led by diversification in sales mix towards value-added segment and increase in sales volumes. Profitability witnessed pressure in FY19 due to decline in margins (inability to fully pass on cost increase) and sizeable increase in finance cost. Leverage indicators witnessed an increase on account of higher utilization of short term borrowings (due to increase in working capital requirements post expansion) and long term debt draw-down for expansion.

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

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 .

VIS Credit Rating Company Limited