The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Kohat Cement Company Limited

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

Kohat Cement’s ratings reflect its strong market position in cement industry. The market share marginally diluted to 4.9% in the wake of lately commenced expansions by other cement players. However, the company has planned brown-field expansion of 2.3mln tpa, which will assist in defending its market share in the ongoing significant expansion trend in the Industry. The financing is planned with debt to equity ratio of 43:57 – majorly equity driven. The new line is expected to be fully commenced by 1QFY20 with an estimated cost of PKR 14.2bln. Management’s plan to comfortably channel the increased supply of cement from expansion remains vital. The Company’s topline remained largely same during FY18 – in line with industry trend. Industry wide margins declined driven by escalated input costs (coal price and import duty) and fluctuation in cement prices. The Company’s margins declined but remained strong when compared with peers in industry which reflects efficient cost framework. Furthermore, the company’s fairly low leveraging, healthy liquid investment book and presence of investment properties on the book provides further comfort to the ratings. Going forward, the Company’s leveraging is expected to remain at moderate level.

The ratings are dependent on upholding of company’s market position in addition to sustenance of business volumes and margins. The company's strong business performance in current stretched economic scenario - challenges on demand front - remains vital for ratings. Upholding of governance practices remains important for the ratings.

About the Entity
Kohat Cement, operates as the eighth largest cement manufacturer of the country with total clinker capacity of 2.6mln tons p.a. Kohat Cement, listed on PSX, is majority owned by ANS Capital (Pvt.) Ltd. (55%) – sponsor family’s majority owned company. The overall control of the company vests in seven member board of directors (BoD) including the Chief Executive – Mr. Aizaz Mansoor Shiekh. Other than the Chief Executive, Mr. Nadeem Atta Sheikh holds an executive position on the board.

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.