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The Pakistan Credit Rating Agency Limited

Date
29-Dec-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Sehar Fatima
sehar.fatima@pacra.com

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

  • Corporate Rating Methodology (Jul 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]

Related Research

  • Sector Study | Cement (Nov 17) [View]
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PACRA Assigns Initial Entity Ratings to Kohat Cement Company Limited
 Rating Type Entity
Current
(29-Dec-2017)
 Action Initial
 Long Term A
 Short Term A1
 Outlook Stable
 Rating Watch -

Kohat Cement’s ratings reflect the market positioning – mid-tier (6% market share) cement player. The Company has cost-efficient operational framework reflected in robust EBITDA margins (leading position only in recent year) and strong profitability. The Company has announced capacity expansion of 2.3mln tpa with an estimated cost of PKR 13bln. The financing is planned with debt to equity ratio of 43:57 – majorly equity driven. This will assist the Company in defending its market share in the ongoing significant expansion trend. However, given current low capacity utilization (FY17: 73.2%, FY16: 72.9%) as compare to industry, the management’s plan to absorb the increased supply of cement from expansion remains important. The Company’s performance remained strong in line with other players in cement industry. The Company’s financial risk remains fairly low primarily due to low leveraged capital structure. Going forward, leveraging is expected to remain at moderate level.

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 and margins, may negatively impact the ratings. Upholding governance practices remains important.

About the Entity
Kohat Cement, operates as the eighth largest cement manufacturer of the country with total clinker capacity of 2.6mln tons p.a. Kohat Cement, listed on PSX, is majority owned by ANS Capital (Pvt.) Ltd. (55%) – sponsor family’s majority owned company.

Excluding CEO, the Company's six member board comprises only one executive member and one independent member. The CEO, Mr. Aizaz Mansoor Sheikh is - associated with the company since 1992. Mr. Sheikh, 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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