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 good market position in cement industry. The company's existing market share in north region is 7%. The company has planned brown-field expansion of 2.3mln tpa, which will increase company's market share to 10% in north's operational capacity. The financing is planned with debt to equity ratio of 43:57 – majorly equity driven. The new line is expected to be commenced by 1QFY20 with an estimated cost of PKR 14.2bln. Management’s prudent plan to comfortably channel the increased supply of cement from expansion remains vital. During 1HFY19, industry dynamics reflect weakening on account of global fluctuation in prices of raw material (coal), depreciation of Pak Rupee, lower retention prices (especially in north region) and higher financing expenses. Lately, the coal prices showed downward trend due to cutdown of imports by China- are expected to remain range bound in medium term. 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. 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. Consequently, company's margins witnessed decline but remained strong when compared to peers. The company’s fairly low leveraging, healthy liquid investment book and presence of investment properties on the book provides 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.