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The Pakistan Credit Rating Agency Limited
Press Release

Date
29-Mar-19

Analyst
Saliha Sajid
saliha.sajid@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Askari Cement Limited

Rating Type Entity
Current
(29-Mar-19)
Previous
(16-Nov-18)
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Askari Cement's ratings reflect its sustained position in the cement industry. The Company has two existing cement manufacturing units (Nizampur and Wah) - operating with combined capacity of 2.7mln tpa, operating in North Region. The company recently completed BMR at Nizampur plant and installed WHR at Wah plant which helped Company to be more operationally effective. Upcoming industry wide expansions of 11.7mln tpa (North Region only) commissioning by Sep-19 and slowdown in the growth of local demand seems a challenge. The demand needs to be up to secure companies’ margin. Export is another avenue. Industry wide exports (sizeable increase in South Region) have gone up due to muted growth in local demand. A new export window is created in Bangladesh market. Previously, cement exports were seen at its peak after financial crisis in 2008. The company was able to maintain growth trajectory trend in revenue in last few years. In the recent slowdown, the Company was successful to secure its margins mainly due to usage of local and Afghan coal; no exchange rate risk involved. The planned expansion at Nizampur plant will be designed to operate at 100% local coal. It is vital for management to uphold business profile of the company by sustaining margins and improving volumes. Company is moderately leveraged and strong sponsor strength provides a comfort. Furthermore, cashflows provide good coverage to anticipate repayment. Going forward, leveraging is expected to increase in longer-term owing to expansion planned. The ratings take comfort from strong financial strength of Fauji Foundation - fourth largest sponsoring group in the cement industry.
The ratings are dependent on current positioning of the company’s business besides financial risk profile; strengthening of equity base is essential. Any significant deterioration in the sector’s outlook particularly any continuation of slowdown in economic growth, interest rate fluctuation and delay in infrastructure projects may affect the ratings. Industry’s dynamics encompassing expected challenges of substantial decline in local demand or deterioration in cement prices will negatively affect the ratings.

About the Entity
Askari Cement Limited (ACL) is an unlisted, public limited company incorporated in 1990. The Company is wholly owned subsidiary of Fauji Foundation and the production facilities are in North Region (Wah and Nizampur). Fauji Foundation has another cement company named ‘Fauji Cement Company Limited. Askari Cement operates with a cement production capacity of ~2.7mln tons p.a. having 4.9% share of the country’s cement capacity of 54.2mln tons per annum as at Jan-19. The collective share of both companies becomes 11.3% which makes Fauji Foundation fourth largest sponsor group operating in cement industry.

The overall control of the company vests in seven-member board of directors (BoD), including the CEO. The sponsor dominated board is chaired by Chairperson – Lt Gen Syed Tariq Nadeem Gilani, (Retd), who is also associated with several Fauji Foundation companies board. He holds extensive experience of banking, fertilizer, petroleum, power and various other sectors. The CEO, Maj Gen Ghulam Mustafa kausar, is a graduate from Command and Staff College Quetta and Armed Forces War College (National Defence University) and is associated with the company as Managing Director / CEO since Aug-16. He is assisted by well experienced team members.

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.