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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Sep-19

Analyst
Sehar Fatima
sehar.fatima@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 Kohat Cement Company Limited

Rating Type Entity
Current
(28-Sep-19)
Previous
(29-Mar-19)
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 5.9%. The company has planned brown-field expansion of 2.3mln tpa, which will increase company's market share to 9% in north's operational capacity. The financing is arranged with debt to equity ratio of 43:57 – majorly equity driven. The new line is expected to commence in next few months with an estimated cost of PKR 14.2bln. Management’s plan to comfortably channel the increased supply of cement from expansion remains vital. During FY19, industry dynamics especially for cement players operating in north region have shifted significantly on account of fluctuating cement prices, increase in FED on coal import and depreciation in Pak Rupee against other currencies. Along with these factors, slow local demand has affected the company's sales. Upcoming industry wide expansions of 7mln tpa (North Region only) - commissioning in next six months and slowdown in the growth of local demand seems a challenge. During 9MFY19, volumetric analysis reveals that total cement sales witnessed marginal uptick whereby 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 in the north region with total cement 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.