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The Pakistan Credit Rating Agency Limited
Press Release

Date
21-Jan-22

Analyst
Bazah Tul Qamar
bazahtul.qamar@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA assigns Initial Ratings to Usman Steels Private Limited

Rating Type Entity
Current
(21-Jan-22 )
Action Initial
Long Term BBB
Short Term A2
Outlook Stable
Rating Watch -

Incorporated in April 1978, Usman Steels Private Limited is engaged in the business of ship breaking. The Company’s site spread over four ship breaking yards, all around costal line of Gaddani Beach, District Lasbella, Balochistan. Usman Steels purchases ships directly from ship owners or through Ship brokers for recycling, to retrieve multipurpose ship steel plates and steel scrap to fulfill rapidly increasing steel raw material demand in domestic market. The South-Asian ship-breaking industry, including India, Bangladesh, Pakistan and Turkey, are countries where majority of the ship-breaking activity has been happening. Among all Pakistan ship-breaking yards hold advantages of having favorable geography and weather, cheap manpower making it preferred destination for ship-breaking activities. The ratings are largely supported by the long-standing experiance of the group in diversified sectors and company’s sponsor’s, who have nearly three decades of experience in the ship breaking business. The Company’s operations and profitability are highly exposed to the fluctuations in ship prices along with exchange rates and are dependent on prevailing scrap prices, which could result in poor realisations, irrespective of the availability of improved quality of vessels in the market. The ratings take into account, high financing requirement for procurement of ship along with availability of unservicebale ships in international market and its continued presence in the Company. The ratings reflect Company's medium-scale operations, as highlighted by revenue of PKR 4.7bln in 9MCY21 (CY20: PKR 3.5bln). The increase in revenue is mainly driven by rising demand of steel in the local market along with increased prices. A growth in steel demand can be interlinked with construction activities in Pakistan. The company’s net working capital cycle increased to negative 319 days in 9MCY21 (CY20: 298 days) owing to reduced payable days, which is evident from increased short-term borrowings (9MCY21: ~PKR 4.6bln, CY20: PKR 3.5bln)). Company has taken a short-term borrowing line of ~PKR 6.5bln including, funded and non-funded credit facilities against charge on current assets of the company.
Any decline in the scale of operations, negatively affecting the liquidity profile and financial matrices, would remain critical for the ratings. A substantial improvement in the revenue, profitability, along with improved compliance with regulatory framework will bode well.

About the Entity
Usman Steels (Pvt.) Limited (‘Usman Steels’ or ‘the Company’) was incorporated in April, 1978 as a Private Limited Company. The Company’s site spread over four ship breaking yards, all around costal line of Gaddani Beach, District Lasbella, Balochistan. Till today the Company has broken out scores of unserviceable vessels, including 3 submarines. The Company’s ownership resides with the family of Mr. Ikhlaq Memon. The major stake is with Mr. Ikhlaq Memon (61%). The remaining stake resides with Mr. Usman (33%), Ms. Salma Ikhlaq (3%) and Mr. Ishaq (3%). Mr. Muhammed Ikhlaq Memon: is the Chief Executive Officer of M/s. Usman Steels (Pvt.) Ltd and also holds the position of Chairman of Pakistan Ship Breaking Association (P.S.B.A). Mr. Ikhlaq owns ~50% shareholding in Venture Green Capital (VGR), that is also involved in ship breaking business.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.