Press Release

VIS revises Entity Ratings of Crescent Steel and Allied Products Limited
 

Karachi, April 8, 2020: VIS Credit Rating Company Ltd. (VIS) has revised the entity ratings of Crescent Steel and Allied Products Limited (CSAPL) from ‘A/A-2’ (Single A/A-Two) to ‘A-/A-2’ (Single A Minus/A-Two). The long term rating of ‘A-’ signifies good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ signifies good certainty of timely payment; Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on December 26, 2018.

The assigned ratings incorporate CSAPL’s diversified revenue streams including exposure to steel, textiles, capital markets and power sectors coupled with low leveraged capital structure. However, ratings are constrained by increased business risk of the steel segment which comprises bulk of the company’s revenues and delays in project executions. The steel division exhibits inherent cyclicality since business performance largely depends on public sector and pipeline augmentation projects of gas utility companies. Rating also takes into account the impact of order book delays on its profitability and cash flow profile.

Topline of the company has depicted a decreasing trend during the last two financial years primarily on account of lower business booked. Margin attrition has also taken place on account of reduced turnover in high margin producing segments particularly pipes. Lesser absorption of fixed costs, lower plant occupancy and weakened pricing power (in view of a depressed demand scenario) has also negatively impacted gross margins. While the expense base has largely been controlled, bottom line profitability of the company has remained stable (adjusting for the one-off dividend paid by its associate). Going forward, management expects some growth in topline on account of materialization of the order pipeline and added sales of its new business segments; improvement in margins is also expected on account of higher plant occupancy. However, disruption in operations due to coronavirus outbreak may be a key business risk factor.

Accounting for dividend income from associates, net cash inflow available for debt payments is considered adequate. Liquidity would remain highly dependent on resumption of high value pipeline projects to ensure higher quantum of cash flow, going forward. Ratings will continue to be dependent on maintenance of leveraging profile and cash flow coverage within benchmarks for the assigned ratings.

For further information on this rating announcement, please contact the undersigned (Ext. 207) or Ms. Muniba Abdullah, CFA (Ext: 215) or at 021-35311861-70 or email at info@vis.com.pk.


Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx

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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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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