Press Release

JCR-VIS Reaffirms Entity Ratings of Aisha Steel Mills Limited

Karachi, October 02, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Aisha Steel Mills Limited (ASL). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on October 05, 2017.

The assigned ratings to ASL are underpinned by financial profile and demonstrated support of the Company’s major sponsor, Arif Habib Group. Ratings also incorporate improved operating performance, profitability profile and industry dynamics post imposition of anti-dumping duty (ADD) on imports from China and Ukraine. Ratings are dependent upon the business risk of the flat steel sector and gearing levels of ASL which are expected to remain elevated over the rating horizon as debt drawdown for expansion materializes. Going forward, timely completion of planned expansion and realization of projected financial indicators post expansion in a more competitive market including improvement in cash flow coverage will be important.

Overall demand for flat steel products has depicted healthy double digit growth over the last three years with sales increasing by 17% during FY18. Demand growth has been driven by the auto, consumer durables, pipes and construction segment. Going forward, JCR-VIS expects demand growth to slow down in the short-term in line with slower economic growth in the backdrop of increasing interest rates and sizeable current account deficit. Moreover, with increasing capacities coming online competition amongst existing players is expected to intensify. Tapping export market in order to deploy surplus capacities is also considered important. Imposition of 25% duty on import of steel products into United States is expected to act as a challenge in this regard. Given the sizeable exportable surplus in steel producing countries, steel prices are expected to witness pressure going forward.

ASL posted strong operating performance during FY18 with capacity utilization reported at 99%. Increase in capacity utilization along with improvement in prime margins translated into healthy increase in profitability levels during FY18. Despite increase in equity base of the company due to retained profits, gearing continues to remain on the higher side. With improvement in cash flows and extended repayment terms for existing long-term debt, debt servicing ability of the company is considered strong. Given the sizeable depreciation of PKR against USD, overall expansion project cost is projected to depict double digit growth. Management plans to fund cost overruns through internal cash flows.

For further information on this rating announcement, please contact the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.

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 2018 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