The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Assigns Positive Outlook to Ratings of Cherat Cement Company Limited

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

The ratings reflect Cherat Cement’s improving profile supplemented by strengthening market share of the company. The company has lately commenced line-II (1.3mln tpa) and has announced another expansion (2.4mln tpa) which will double the company’s existing capacity and will allow the company in joining the league of mid-tier cement players. The company’s revenues witnessed strong standalone growth primarily due to commencement of Line-II and strong sector demand dynamics. The company’s high utilization levels, developments in achieving cost efficiencies and tapping new markets are a positive. The company is revamping its dealer’s network to channel volumes coming from upcoming expansion. The business profile of the company is likely to behave strongly in medium term on the back of healthy volumetric growth and strong absolute EBITDA. Margins dropped; though remained competitive - an industry wide phenomenon. Leveraging has lately increased in pursuit of expansion. However, the comfort can be drawn from early repayment of existing debt and strong free cashflows generated to finance debt taken.

The ratings are dependent on upholding of the company’s business vis-à-vis financial risk profile; strengthening of equity base is essential. Any significant deterioration in the sector’s outlook particularly any unfavorable change in demand and expansion matrix, thereby exerting pressure on prices and margins, may negatively impact the ratings.

About the Entity
Cherat Cement - a Ghulam Faruque Group (GFG) Company - commenced operations in 1985. The company is engaged in the manufacturing, marketing and sale of Ordinary Portland Cement. Presently, the company's installed capacity stands at 2.4mln tpa; market share (5.2%). Also, the company has announced capacity expansion of another 2.4mln tpa (expected CoD in/ or earlier Dec-18) with estimated cost of PKR 13.5bln - debt to equity ratio of 70:30. The company is majority owned by GFG through associated companies and family members. GFG - a medium sized group - mainly maintains interest in cement, sugar and packaging. The overall control of the company vests in eight member Board of Directors (BoD), including the CEO. The BoD comprises seven non-executive directors, including one independent director, out of which four are Ghulam Faruque family members. Mr. Azam Faruque, the CEO, is the grandson of Mr. Ghulam Faruque, and has been associated with the company since 1992. Mr. Faruque is supported by a team of professionals with relevant experience in the cement industry.

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.