Karachi, May 11, 2022 (PPI-OT):VIS Credit Rating Company Limited has reaffirmed the entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) assigned to International Industries Limited (IIL). The medium to long-term rating of ‘AA-’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor. The outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on March 12, 2021.
The current ratings incorporate IIL’s strong position in the tube and pipes segment along with its sound financial profile, robust corporate governance framework and extensive experience and track record of its sponsors and management in the steel sector. The steel sector is characterized by moderate to high business risk given the cyclical nature of the industry. During FY21, the industry faced significant volatility in steel prices where Hot Rolled Coil (HRC) prices ranged from $450-1,100 per MT.
A sharp price differential between China and other steel producing countries since post lockdown led to SE Asian and CIS producers diverted their goods to markets accepting of higher prices. Demand drivers for growth in the domestic steel sector going forward emanates from the commencement of second phase of CPEC, construction of 1,100 km gas pipeline from Karachi to Kasur (Pakistan Stream Gas Pipeline project with Russia), and multiple high-rise projects in the pipeline. Imminent industry risks include inventory losses arising as a result of exchange rate and commodity price volatility.
Our assessment of financial risk profile reflects growth in sales revenue, profitability levels, and improvement in liquidity indicators. Higher sales revenue in the outgoing year was fueled by the escalation in exports sales; however local sales continue to dominate the sales mix. During HY22, sales revenue has followed a similar growth momentum, primarily attributable to higher international steel prices. Going forward, the management projects stable demand flow in the steel segment with additional support foreseen from broadened product range in the polymer segment.
The improvement in the profitability profile was supported largely by inventory gains and dividend income from subsidiary in the review period. In line with higher profitability, cash flow coverages in relation to outstanding obligations surged in the review and ongoing period, despite elevated debt levels. To finance working capital needs amidst rising input costs, leverage indicators trended upwards in the outgoing year. The ratings are sensitive to economy dynamics and revenue growth stemming out of it. Increase in margins along with improving capitalization and leverage indicators would be an important rating driver, going forward.
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/