Karachi, October 25, 2022 (PPI-OT):VIS Credit Rating Company Ltd. (VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to BBJ Pipe Industries Limited (BBJP). Outlook on the assigned ratings is ‘Stable’. Long-term rating of ‘BBB’ signifies adequate credit quality with sufficient and reasonable protection factors. Risk factors are considered variable if changes occur in the economy. Short-term rating of ‘A-2’ signifies good certainty of timely payment, sound liquidity factors and company fundamentals. Access to capital markets is good. Risk factors are small.
Assigned ratings takes into account moderate to high business risk of the steel sector characterized by volatility in the commodity prices and exposure to currency fluctuations. Ratings factor in three decades of relevant experience and support of the sponsors evidenced through extension of financial support in the past. BBJP has sound internal control and IT framework, however room for improvement exists in governance structure.
Ratings incorporate growth in BBJP’s topline that is largely attributable to volumetric increase in sales of steel pipes in the commercial segment. Amidst monsoon flooding in Pakistan, management expects demand of variety of pipes and tubes to remain stable on account of rebuilding of infrastructure facilities. Going forward, timely commencement of awarded and pipeline projects is considered important to support revenue profile of the Company. On a timeline basis, profitability metrics of the Company have improved mainly due to strategic shift of business towards commercial clients, yielding economies of scale and resulting in margin improvement.
However, margins in the recent year have been impacted by rising raw material prices and rupee devaluation. While commodity prices have started to come down, meeting projected profitability in the wake of currency volatility and high interest rate scenario will remain a key rating sensitivity. Liquidity profile of the Company is considered adequate in terms cash flow coverage of outstanding obligations. However, elevated gearing levels relative to business risk and thin margins remains a rating constraint. Projected improvement in the same through consistent profit retention together with improvement in liquidity metrics is considered important for ratings.
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/