VIS Adjusts Outlook on Naveena Steel Mills Ratings to Negative Amid Economic Challenges

Karachi: VIS Credit Rating Company Limited (VIS) has updated its entity ratings for Naveena Steel Mills (Pvt.) Limited (NSML) to 'A-/A-2' for medium to long-term and short-term respectively, reflecting good credit quality with sound liquidity factors. However, the outlook has been revised from 'stable' to 'negative' due to mounting economic pressures and profitability concerns.

According to VIS Credit Rating Company Limited, the adjustment in outlook is primarily due to NSML’s challenging profitability and coverage profile in an economically volatile period for Pakistan. NSML, established on February 15, 2017, is a key player in the steel manufacturing sector, producing steel bars and billets. It operates as a wholly-owned subsidiary of Naveena Group (Pvt.) Limited, which has diverse business interests across textile, energy, and construction sectors.

The assigned ratings take into account the high business risk profile typical of the long steel industry, characterized by sensitivity to economic cycles, foreign exchange rate fluctuations, and international steel price volatility. The sector faced additional headwinds from recent floods, inflation, currency depreciation, and shrinking foreign reserves, contributing to GDP contraction and a reduced market size for steel products.

The negative outlook reflects the ongoing pressures on NSML’s profitability, exacerbated by increased financial charges and a contraction in sales. Despite high margins bolstering cash flow in FY23, persistent cost pressures and stagnant selling prices in 3QFY24 further strained the company's financial coverages. While capitalization and liquidity remain adequate, slight deteriorations were observed during the review period.

Future ratings for NSML will hinge on the company’s ability to restore its profitability and coverage metrics in line with assigned ratings, alongside continued support from the Naveena Group to address any shortfalls.