PACRA Maintains Entity Ratings of Bestway Cement
Bestway Cement’s ratings reflect its established position emanating from its leading market share (18%) – fortified by acquisition of Pakcem in Apr15 – cost-efficient operational framework resulting in robust EBITDA margins, and healthy profitability. The company’s business profile is further strengthened by an established and dependable dividend stream from its strategic investment - United Bank Limited (~8% stake) - augmenting its cashflows. The entity’s financial risk, mainly reflected from strong coverages and moderately leveraged capital structure, remains low despite sizeable debt-driven acquisition. The ratings derive benefit/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.
In line with its plan, Bestway Cement has lately announced the merger of Pakcem (88% owned) with and into Bestway Cement effective Jan. 1, 2016. Although overall business landscape remains the same, the company is likely to benefit from management and operational synergies by consolidating its operations. Nevertheless, building team cohesiveness remains important. In view of positive sector demand, sizable expansions have been announced by the industry players. This may challenge Bestway Cement’s existing market share.
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, thereby exerting pressure on prices, may negatively impact the ratings.
Bestway Cement, post merger of Pakcem, operates as a single largest cement manufacturer of the country with total cement capacity of ~8.5mln tons p.a. (clinker: 8.1mln 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 seven-member board comprises mainly BWG nominees. Two directors are Bestway Cement's executives (including CEO) while five are non-executive directors including Chairman and an independent director. The CEO, Mr. Zameer M. 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.