The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Cherat Cement Company Limited

Rating Type Entity
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect Cherat Cement's strong business profile supported by favorable local demand exhibiting strong sector fundamentals. The commencement of new line (1.3mln tpa) has stimulated the performance of the company in a positive way. 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 revenues continued to witness growth with capacity utilization levels formerly reaching optimal level. With the commencement of new line, performance of the company is likely to behave robustly. EBITDA margins are expected to improve further on the back of steady demand growth in the company's existing markets. The financial risk profile has improved on the back of healthy internal generation. The ratings take comfort from strong coverages.<p>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 exert negative pressure on 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 Jun-19) with estimated cost of PKR 13.5bln - majorly debt-driven. 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.<p> 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.