PACRA Revises the Entity Ratings of Amreli Steels Limited

The steel industry has been grappling with significant challenges since FY23, including subdued demand, PKR depreciation, high financial costs, record-high energy rates, and a substantial increase in input costs. These factors have placed considerable strain on the industry, with many steel mills operating at a fraction of their capacity and some on the brink of closure. Amreli Steels Limited ("Amreli" or "the Company") has been similarly impacted by these macroeconomic pressures. In addition to sectoral challenges, the Company has faced operational difficulties such as high energy and finance costs, coupled with limited access to working capital lines. These challenges lead to a notable decline in volumetric sales. As a result of these mounting difficulties, Amreli’s credit ratings were adjusted downward by two notches, from "A-" to "BBB" in May 2024. Despite the management’s efforts to address these issues through a detailed strategic plan, progress remained slow. Capacity utilization had fallen significantly, which, in turn, weakened its financial position. As a consequence, the Company’s credit ratings were again adjusted by two notches to "BB" in October 2024. Due to operational and industry challenges, management suspended operations at the SITE Rolling Mill (SRM) for six months starting in September 2024, with the suspension still ongoing. For the 1HFY25, Amreli reported a significant decline in revenue, with its topline shrinking by ~60%, reaching PKR 8.80 billion compared to PKR 22.25 billion in the same period of FY24 (FY24: PKR 38.78 billion, FY23: PKR 45.49 billion). Low-capacity utilization resulted in unabsorbed fixed costs, escalating production expenses, and a sharp contraction in gross margins, which fell to 2.8% (1HFY24: 11.2%, FY24: 6.2%, FY23: 13.1%). Operating margins turned negative for the first time, placing further strain on the Company's financial position. The Company’s financial situation was further exacerbated by high finance costs, stemming from its reliance on short-term borrowings for working capital management and long-term loans taken to expand production capacity following a surge in demand in FY21. This culminated in a net loss of ~PKR 1.9 billion in 1HFY25. Given these ongoing financial and operational difficulties, the credit ratings of the Amreli’s further adjusted to "B," reflecting a high credit risk. These ratings revision underscores the Company’s deteriorating financial health, low-capacity utilization, reduced ability to meet financial obligations, and mounting pressure on debt repayment.
To address its financial and operational challenges, management is actively implementing a comprehensive series of strategic measures. A significant debt restructuring process is currently underway, with 80% of the required approvals already secured. This restructuring includes a grace period for both interest and principal repayments, allowing the Company to preserve cash flow and focus on reinvesting in its operations. These efforts will facilitate access to essential working capital lines, improving liquidity and supporting enhanced capacity utilization. In addition, the Company is taking steps to divest non-core assets, some of which have already been sold. Furthermore, the sponsor is injecting PKR 1 billion in equity, which is anticipated to align with the banks' approval of the debt restructuring, providing additional support to improve operational capacity over time. Management is optimistic that, by the end of FY25, these strategic initiatives will begin to yield tangible results, driving operational improvements and enabling the Company to restore capacity utilization to previous levels.

About the Entity
Amreli Steels Limited, established in 1984 and listed on the PSX in 2015, is primarily owned by the Akberali family, holding around 75% of the Company. The Board of Directors includes seven members, with four from the Akberali family and three independent members. Mr. Abbas Akberali, the founder, serves as Chairman, while Mr. Shayan Akberali has been the CEO since August 2017.