Karachi, January 10, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB-/A-2’ (Triple B minus/A-Two) to Mehboob Steel Pipe Industry. The medium to long-term rating of ‘BBB-’ denotes adequate credit quality coupled with reasonable and sufficient protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings is ‘Stable’.

The ratings assigned to MSPI take into account the moderate business risk profile of allied steel products sector given its fragmented nature accompanied by prevailing competition and price sensitivity of raw material to exchange rate. Moreover, current low per capita steel consumption and favourable demand outlook from industries (autos, construction and pipelines) catered to by steel tube and pipe industry is expected to keep demand risk of the company mitigated which draws comfort to the ratings.

Assessment of financial risk profile incorporates management projected growth in revenues based on volumetric increase, improvement in leverage indicators and adequate debt service coverage. The company has a conservative capital structure with no reliance on long-term borrowings; moreover, the utilization of short-term funding was also largely tapered off during the review period owing to efficient inventory management. The company has no plan of procuring long-term funding in the medium to long-term as no major capital expenditure is in the pipeline; any uptick in demand will be accommodated by the existing capacity.

The ratings derive strength from equity injection made by the sponsors during the ongoing year to support growing working capital requirements. The ratings remain sensitive to downward trend witnessed in margins owing to lead-lag in input-output pricing. On account of dip in margins, cash flow required in terms of outstanding obligations, albeit improved, still remains on a lower side. The ratings remain dependent on improvement of business margins through operational efficiencies, prudent management of working capital cycle and maintenance of leverage indicators at around current levels.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/