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The Pakistan Credit Rating Agency Limited

Date
05-Apr-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Sehar Fatima
sehar.fatima@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Cement (Sep 16) [View]
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PACRA Maintains Entity Ratings of Bestway Cement Limited
 Rating Type Entity
Current
(05-Apr-2017-)
 Action Maintain
 Long Term AA-
 Short Term A1+
 Outlook Stable
 Rating Watch -

Bestway Cement’s (the Company) ratings reflect its established position emanating from its leading market share (18%), cost-efficient operational framework resulting in strong EBITDA, and robust profitability. The Company has lately announced capacity expansion (1.8mln tpa). The Company has signed a non-binding MoU with Dewan Cement for acquisition of its northern plant (1.1mln tpa). This will assist the Company in holding its market share amidst the industry wide significant expansion trend. In addition to the robust local demand, the company’s business profile is further strengthened by an established and dependable income source from its strategic investment in UBL (United Bank Limited ~8% stake; ~PKR 2bln dividend each year). The Company’s financial risk, mainly reflected from strong coverages and low leveraged capital structure, remains low. Planned acquisition and expansion would lead to new borrowings. However, the impact would be manageable due to a) immediate availability of cashflows from acquisition, b) dispersed borrowing pattern (around 3 years) for expansion, and c) strong internal cashflows. The ratings derive comfort from (i) the Company’s association with Bestway Group (UK), and (ii) strong local cement demand on the back of rising economic and infrastructure activity.

The ratings are dependent on upholding of the company’s business vis-à-vis financial risk profile. Any significant deterioration in the sector’s outlook particularly any unfavorable change in demand and expansion matrix, thereby exerting pressure on prices, may negatively impact the ratings.

About the Entity
Bestway Cement, post merger of Pakcem, operates as the single largest cement manufacturer of the country with total cement capacity of ~8.5mln tons p.a. Bestway Cement, listed on PSX, is majority owned by Bestway Group (BWG) - UK (~76%), mainly through corporates (62%), followed by individuals (14%).

The Company's eight member board comprises mainly BWG nominees. Two directors are Bestway Cement's executives (including CEO) while six are non-executive directors including two independent members. The CEO, Mr. Zameer Mohammed Choudrey, is a Chartered Accountant, associated with the group since 1984. Mr. Choudrey, also serving as Group CEO, is supported by a team of experienced professionals.

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.
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