JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of 'AA-/A-1' (Double A Minus/A-One) to International Industries Limited (IIL). Outlook on the assigned ratings is 'Stable'.
The assigned ratings incorporate the company's position as the largest tube and pipe manufacturer in the country. Moreover, the extensive experience and track record of the sponsors in the steel sector is also a key rating driver. Ratings also reflect stable and improving financial profile of IIL and strong corporate governance framework.
Given the cyclical nature of the industry, volatility in steel prices and threat of dumping particularly from China, overall steel sector business risk is assessed to be high. Duties on pipe imports along with IIL's strategy of keeping margins at competitive levels has facilitated in partly mitigating competition from imports.
Going forward, organic growth in traditional products along with sales from commissioning of Stainless Steel & large diameter steel pipe mill and Pakistan's largest HDPE pipe extruder are expected to be the growth drivers for revenues. Moreover, current low per capita steel consumption, favourable demand outlook from industries (autos, construction and pipelines) catered to by IIL is expected to contribute positively to sales. IIL's gross margins witnessed improvement during FY16 on account of inventory gains translating into higher profitability. With raw materials representing the major cost component and significant volatility in prices, efficient procurement, inventory management and volumetric off-take are critical to gross margins. Profitability of IIL is supported by increase in dividend income from subsidiary ISL which is expected to continue to expand and grow.
IIL's liquidity profile draws support from healthy cash flows in relation to outstanding obligations, improving working capital cycle and ageing profile of trade debts. With an increase in equity base and decline in borrowings, leverage indicators have trended downwards.
IIL is Pakistan's largest manufacturer of steel and plastic pipe with an annual pipe manufacturing capacity of 500,000 tons. Sales mix of IIL is diversified in terms of local and export sales and comprises multiple products from two segments (steel and plastic). Local sales witnessed growth during FY16 and represent the major portion of company's sales. Over the last five years, export sales (in volumetric terms) have ranged between 30%-40% with the company exporting to 60 countries across five continents.-PR
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