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The Pakistan Credit Rating Agency Limited

Date
28-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 Maintains Entity Ratings of Cherat Cement Company Limited
 Rating Type Entity
Current
(28-Dec-2017)
Previous
(06-Jun-2017)
 Action Maintain Maintain
 Long Term A A
 Short Term A1 A1
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect Cherat Cement's healthy business profile which is further fortified by favorable local demand exhibiting strong fundamentals. The commencement of new line (1.3mln tpa) and WHRPP are the positives. The company’s revenues witnessed strong standalone growth solely due to commencement of new line. With the announcement of another line (2.4mln tpa), the company is likely to join the league of mid-tier industry players in coming years. The company’s business profile is likely to behave strongly, in the medium term, on the back of steady demand growth in the company’s existing markets. With high capacity utilization level (FY17: 97%, FY16: 90%), the company can capitalize on the current strong demand coming. The financial risk profile is adequate on the back of internal generation. However, the debt-driven expansion may increase leveraging in upcoming years. The ratings take comfort from strong coverages.

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.

About the Entity
Cherat Cement - a Ghulam Faruque Group (GFG) Company - commenced operations in 1985. The company is engaged in the manufacturing, marketing and sale of Ordinary Portland Cement. Presently, the company's installed capacity stands at 2.4mln tpa; market share (5.2%). Also, the company has announced capacity expansion of another 2.4mln tpa (expected CoD in/ or earlier Jun-19) with estimated cost of PKR 13.5bln - debt to equity ratio of 70:30. The company is majority owned by GFG through associated companies and family members. GFG -a medium sized group - mainly maintains interest in cement, sugar and packaging.

The overall control of the company vests in eight member Board of Directors (BoD), including the CEO. The BoD comprises seven non-executive directors, including one independent director, out of which four are Ghulam Faruque family members. Mr. Azam Faruque, the CEO, is the grandson of Mr. Ghulam Faruque, and has been associated with the company since 1992. Mr. Faruque is supported by a team of professionals with relevant experience in the cement industry.
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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