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The Pakistan Credit Rating Agency Limited

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

+92-42-35869504
www.pacra.com
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Related Research

  • Sector Study | Cement (Sep 16) [View]
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PACRA Maintains Entity Ratings of Cherat Cement
 Rating Type Entity
Current
(03-Nov-2016-)
 Action Maintain
 Long Term A
 Short Term A1
 Outlook Stable
 Rating Watch -

The ratings reflect Cherat Cement's improving business profile in line with increasing local demand exhibiting strong sector fundamentals. Once operational, upcoming capacity expansion is likely to add impetus to the performance of the company. In FY16, the company's revenue maintained its growth trajectory. Capacity utilization, while showing an increase [FY16: 94%, FY15: 88%], is reaching close to optimal level from existing capacity. Higher margins - a factor of lower cost, mainly of fuel and power - positively impacted bottomline. Cherat Cement's expansion project is at an advance stage: expected CoD Nov16. EBITDA margins are expected to remain healthy post expansion on the back of steady demand growth in the company's existing markets. The project debt:equity has been revised down. This, coupled with, higher internal cash generation helped to maintain strong debt servicing ability. Given timely commissioning of new line, expected incremental cashflows are likely to keep financial risk low over the medium term.

The ratings are dependent on the management's ability to sustain healthy capacity utilization along with EBITDA margins post expansion. Any significant deterioration in the company's cashflows due to demand fluctuation or pricing pressure, impacting coverages, will be rating negative.
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 1.1mln tpa; market share (2.4%). With upcoming expansion of 1.3mln tpa (expected CoD in Nov16) the market share of the company would increase to 5%. 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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