Press Release

VIS Reaffirms Entity Ratings of Razaque Steels (Private) Limited

Karachi, May 24, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Razaque Steels (Private) Limited (RSPL) at ‘BBB-/A-3’ (Triple B Minus/ A-Three). 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 with good expected certainty of timely payment. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on March 9, 2020.

Assigned ratings take into account the business risk of long steel sector which is considered moderate given its fragmented nature accompanied by prevailing competition and price sensitivity of raw material to exchange rate. Nonetheless, the sector continues to be supported by strong sovereign protection through favorable tariff regime. In addition, given recent construction sector growth, demand risk of the company is mitigated which draws comfort to the ratings.

Capacity utilization of bars stood lower in the outgoing fiscal year on account of plant being shut down for 51 days due to pandemic-induced slowdown in sales. This resulted in operational challenges for all industry players. However, given subsequent economy recovery and favorable outlook for construction industry, RSPL’s plants are currently operating at nearly full capacities. Besides, re-rolling mill underwent upgradation during the plant closure period for efficiency enhancement which resulted in stated capacity to increase by ~20%. Going forward, management has planned to further improve capacity through eliminating production bottlenecks and gradual automation of the machinery.

In FY20, topline of the company has crossed Rs. 4b mark. The year-on-year uptick of ~9% in sales is solely attributable to volumetric growth of Deformed Bars (DB) sales. Gross margins have trended upwards on a timeline basis as a result of backward integration of operations and efficient scrap procurement, albeit continues to remain on the lower side vis-à-vis industry peers on account of the long distance between billet making and re-rolling units which in turn translates in to higher transport and re-heating expenses. Lower margins along with higher reliance on borrowings adversely impacts the bottom-line as the company registers two consecutive years of pre-tax losses. Since last review, delayed payments from customers affected the company’s working capital cycle and has stressed operating cash flows which in turn necessitated increase in utilization of short-term debt. Subsequently, increased debt utilization and low equity base led to elevated leverage indicators.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext. 201) at 021-35311861-70 or email at .

Javed A. Callea

Applicable Rating Criteria: Industrial Corporates (April 2019)

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 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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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