The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Gharibwal Cement Limited

Rating Type Entity
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Gharibwal Cement's improving business profile appended by (i) gradual increase in sales volume and, (ii) high capacity utilization levels (9MFY17: 77%, FY16: 65%). The company focuses on geographies closer to the plant location (Chakwal) for sales - hence, managing distribution costs at lower level as compared to peers. The commencement of efficiency projects (i) 20MW Waste Heat Recovery Plant and (ii) Downhill Conveyer Belt (capacity: 1200tph) are the positives, however the desired efficiencies will take time to materialize. Furthermore, operational modalities regarding upcoming capacity expansion of 2.4mln tpa (expected CoD: Dec18) have been finalized with a Chinese Supplier. Over last few years business profile has shown steady improvement mainly on account of positive cement sector dynamics. Owing to demand potential in local market, the profitability of the company is likely to remain strong in the medium term. Continuation in demand trend and Gharibwal Cement's ability to build requisite efficient supply chain post expansion remains important. The debt driven expansion has impacted financial coverages however, the leveraging is expected to remain range bound. The ratings draw comfort from business prospects that correlate to buyont cement sector fundamentals.<p>The ratings are dependent on the management's ability to uphold the business and financial risk profile. Any significant deterioration in the sector’s outlook particularly any unfavourable change in demand and expansion matrix, thereby exerting pressure on prices, may negatively impact the ratings.

About the Entity
Gharibwal Cement Limited, commenced operations in 1965, is listed on PSX. The company is engaged in manufacturing, marketing and sale of Ordinary Portland Cement. The company has installed cement capacity of 2.1mln tpa (market share: 4.6%). Also, announced capacity expansion of 2.4mln tpa with estimated cost of PKR ~13bln. The company is majority owned by Mr. Tausif Peracha (~58%), founder of Gharibwal Group, followed by Rafique Family (~33%) having interest in real estate business abroad. Gharibwal Group has interests in glass manufacturing, lubricants and real estate projects locally and shipping and truck manufacturing in Nigeria.<p> The overall control of the company vests with nine member BoD, including an independent director. Peracha family has five representatives, including CEO. The Chairman and two other directors represent Rafiq Family on board. Mr. Tousif Peracha, the CEO, is supported by a team of experienced individuals.

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.