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The Pakistan Credit Rating Agency Limited

Date
02-Nov-2016
Analysts
Saira Rizwan
saira.rizwan@pacra.com

Haider Imran
haider.imran@pacra.com

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


Related Research

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PACRA Assigns Entity Ratings to Pioneer Cement
 Rating Type Entity
Current
(02-Nov-2016-)
 Action Initial
 Long Term A
 Short Term A1
 Outlook Stable
 Rating Watch -

The ratings reflect Pioneer Cement's strengthened business profile exhibited from strong - yet growing - EBITDA margins, and gradually improving revenue stream. Pioneer Cement's sales are majorly driven by local market fundamental - a factor of plant location whereby local sales are feasible versus exports. Sales focus on nearby geographies - thereby reducing distribution expense - has benefited the Company's EBITDA. The Company is in process of setting up Waste Heat Recovery Plant (Expected CoD: Nov16); this is likely to bring saving in power cost; hence, augmenting cost efficiency. Capacity utilization, though improving, remained low due to grinding capacity constraints. The Company is in process of expanding its grinding capacities to be completed by Feb17. Going forward, the management is planning to install another production line (annual capacity: 2mln tons); related operational and financial modalities are in process of finalization. This would raise the leveraging; however, it is expected to remain manageable. The ratings draw comfort from (i) positive cement sector fundamentals, and (ii) sponsor's financial strength.

The ratings are dependent on the management's ability to (i) uphold margins, and (ii) optimal utilization of existing lines. It is critical to prudently structure and manage expansion related debt. Upholding governance practices remains important.
About the Entity
Pioneer Cement is an affiliate of Mega group. The group owns 47% stake in Pioneer Cement through Vision Holding Middle East Limited. The group, led by Mr. Habibullah Khan, has key interest in shipping and logistics business, in addition to exposure in real estate, ports (terminal), food, and energy sectors. Pioneer Cement is listed on PSX and has a well spread shareholding pattern.

The overall control of the Company vests in eight-member board of directors including the MD/CEO. Four directors represent Mega group (and are executives of different group companies), two are independent members, while remaining two are executive directors. The MD, Syed Mazhar Iqbal, is Chartered Accountant and carries over three decades of diverse experience. He is supported by an experienced management team.
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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