VIS Credit Rating Company Limited has reaffirmed the entity ratings of Aisha Steel Mills Limited (ASML) at ‘BBB+/A2’ (Triple B Plus/A Two). The long-term rating of ‘BBB+’ reflects adequate credit quality with reasonable protection factors, though risk factors may vary with economic changes. The short-term rating of ‘A2’ indicates a good likelihood of timely repayment of short-term obligations, supported by sound liquidity. The rating outlook remains ‘Stable.’
The ratings factor in the flat steel sector’s high to medium risk profile, marked by weak domestic demand, volatile international steel prices, and rising import competition during FY24. A notable trend was the sharp decline in domestic steel prices, driven by reduced global raw material costs due to falling demand from China, which impacted margins in Q1 FY25. Despite these challenges, the ratings are supported by strong sponsor backing, evidenced by recurring equity injections through sponsor loans. Continued sponsor support remains critical for the ratings.
ASML’s financial risk profile reflects moderate profitability, underpinned by higher volumetric growth in local and export markets compared to the previous year. However, inventory losses have pressured margins, affecting overall profitability. Liquidity constraints persist, with tight current ratios and operational cash flow gaps. Debt servicing remains under strain due to compressed margins, though the sponsor’s financial backing strengthens the capitalization profile.
Future rating stability will hinge on macroeconomic improvements and measures to curb import competition, which are expected to aid demand recovery and stabilize margins. The ratings also depend on management’s ability to enhance operational efficiency, profitability, and liquidity while sustaining sponsor support to address financial gaps. The outcome of ongoing lender negotiations will play a significant role in future ratings.
Established in 2005 and commencing commercial operations in 2012, ASML is one of Pakistan’s largest manufacturers of flat-rolled steel products, including cold-rolled and hot-dipped galvanized coils. The company operates out of Port Qasim, Karachi, with a nameplate capacity of 700,000 tons per annum.
