The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA maintains Entity Ratings of Amreli Steels Limited

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Amreli Steels has good business profile on account of the company’s market positioning in the industry. The Company produces two key products: i) steel billets, ii) rebars including a) Grade 60 Deformed Steel bars and b) Xtreme bars (G-500W). The Company achieved capacity expansion of melting from 400,000 tons to 600,000 tons in June 2019 and rebars manufacturing capacity from 180,000 tons to 605,000 tons in June 2018. Rebar capacity will be further enhanced to 1,105,000; however the project is currently at halt for quite some time now on account of tough previous years in term of observed contracted economy. The company being 'Champion in selling Rebars' intends not to compromise on its quality and working to increase its footprint in other regions. Steel Industry dynamics reflect healthy prospects with notable growth in demand on the back of increased private sector spending. The governing bodies also took several measures to boost economy that provided supportive measures including curtailed policy rates, stabilized exchange rate and availability of subsidized financing. However; raw material costs witnessed historically increased prices which has a squeezing impact on margins. Meanwhile, the commencement of announced PSDP funded projects is going to contribute towards strong demand to strengthen the cashflows in near future. The volumetric increase (from recently added capacity to capture augmented demand) improved topline but margins did not reflect the wholesome increase due to a proportionate increase in costs. Amreli's financial risk matrix is stretched where the debt to equity ratio stands at around ~59.7% owing to the significant reliance on long term & short term financing for day-to-day working capital requirements. The ratings reflect better margins and recovered profitability in recent reported quarter post FY20 losses. The performance trend depicting revival after a dip witnessed till last fiscal year. Going forward, the management is expected to focus on optimal capacity utilization to achieve economies of scale and increase its market share while aligning the financial matrix to repay the principal amount of loan.
The ratings draw comfort from the strong business acumen of Amreli Steels' sponsors - Akberali Family. The ratings are dependent on the management's ability to uphold in difficult times and improve its business vis-àvis financial risk profile while operating in a flourishing economy. Utilization of enhanced capacity while capturing increased demand and sustained margins are vital. Moreover, prudent management of financial affairs proven vital in the sustainability of the Company.

About the Entity
Amreli Steels Limited, incorporated in 1984, obtained listing on Pakistan Stock Exchange on Dec 1st, 2015. The company is majority-owned by Akberali family (~75%), followed by financial institutions (~6%) and the general public (~19%). Sponsoring family carries over six decades of experience in steel and allied business. Amreli Steels operates a re-rolling mill (capacity: 605,000tpa) and a billet manufacturing plant (capacity: 600,000tpa).

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.