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PACRA Maintains Entity Ratings of Bestway Cement Limited

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

Bestway Cement’s ratings reflect its leading position in the market emanating from its highest market share (18.2%) as at Jan-19. The Company's brown field expansion in 4QFY18 and successful mergers in the past helped company to maintain its position. The company has cost efficient operational framework, healthy margins, and good profitability. Despite the sharp decline witnessed in margins, industry wide, on account of 1) international coal prices and relevant duties, 2) increase in FED and 3) fluctuation in cement prices – Bestway managed to secure its margins as compared to others. Lately, the coal prices showed downward trend due to cutdown of imports by China- are expected to remain range bound in medium term. 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’s expansion of 1.9 mln tpa was commenced in Jun-18 and has been fully operational since then which is supplementing positively to the company’s business profile. The company’s ratings are further strengthened by the sustainable dividend income from its strategic investment in United Bank Limited (UBL) in which company is holding 7.68%. The company’s financial risk is categorized by efficient working capital management in terms of both cashflows and short-term borrowing, low leveraged structure, good coverages, remains low. The ratings also draw comfort from the strong sponsor support (Bestway Group).
The ratings are dependent on upholding of company’s leading market position along with sustenance of business volumes and margins. Company's long term debt repayment is scheduled in Apr-20, which will further strength financial risk profile. The company's good business performance as compared to other players in current stretched economic scenario - challenges on demand front - remains vital for ratings.

About the Entity
Bestway Cement operates as the largest cement manufacturer of the country with total cement capacity of ~9.9mln tons p.a with the market share of 18.2%. Bestway Cement, listed on PSX, is majority owned by Bestway Group (BWG) UK (77%), mainly through corporates (60%), followed by individuals (~17%).

The Company's eight member board comprises mainly BWG nominees. Two directors are Bestway Cement's executives (including CEO) while six are non-executive directors including two independent members. The board’s Chairman Mr. M. Anwar Pervez is an experienced professional, also a founding member of Bestway Group. The CEO, Mr. Zameer Mohammed Choudrey, is a Chartered Accountant, associated with the group since 1984, supported by a team of experienced professionals.

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.