Moody’s Investors Service changed the rating outlook on Steel Pipe Industry of Indonesia (ISSP)’s, or Spindo, to negative from stable. Moody’s also affirmed Spindo’s B2 corporate family rating (CFR).
Moody’s expects that Spindo’s gross margin will remain under pressure due to steel price volatility over the next 12-18 months, resulting in elevated leverage and weak interest coverage.
As steel accounts for 85%-95% of its cost of goods sold, Spindo is exposed to fluctuations in global and domestic steel prices. Although the company uses a cost plus pricing model, it has been unable to fully pass on the increase in steel prices to its customers on a timely basis.
As a result, Spindo’s gross margins have fallen to 15% for the 12 months ended 30 June 2018 from 18% in 2017 and 25% in 2016. Spindo’s liquidity position is weak, as 70% of the company’s total debt –or Rp2.2 trillion – comes due in the next 12 months.