The Pakistan Credit Rating Agency Limited
02-Nov-16
Analyst
Ayesha Qasim
ayesha.qasim@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
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PACRA Entity Ratings of Pioneer Cement Limited
| Rating Type | Entity | |
|
Current (02-Nov-16 ) |
||
| Action | Initial | |
| Long Term | A | |
| Short Term | A1 | |
| Outlook | Stable | |
| Rating Watch | - | |
The ratings reflect Pioneer's strengthened business profile exhibited from strong - yet growing - EBITDA margins, and gradually improving revenue stream. Pioneer'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 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.