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The Pakistan Credit Rating Agency Limited
Press Release

Date
25-Oct-19

Analyst
Usama Zubair
usama.zubair@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 Cherat Cement Company Limited

Rating Type Entity
Current
(25-Oct-19)
Previous
(26-Apr-19)
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Positive Positive
Rating Watch - -

The Positive Outlook on ratings reflect Cherat Cement’s improving profile supplemented by recently enhanced market share of the company. With an installed capacity of 4.5mln tons per annum, the company currently holds 10% share in the north region's operational cement capacity. During FY19, the Company’s revenues witnessed increase attributable to marginal uptick in cement production (end-Jun19: 2.5mln tons, end-Jun18: 2.4mln tons). Margins witnessed decline in line with majority cement players operating in north region. 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 cement and depreciation in Pak Rupee against other currencies. Along with these factors, slow local demand has affected the company's utilization levels. The company's efforts of incentivizing dealers in order to enter new markets and developments in achieving cost efficiencies are a positive. The strengthening of business profile by achieving optimal utilization of production capacities is essential. Increased finance cost has led to decline in coverage. However, comfort can be drawn from some early repayments made. Going forward, improvement in profitability for timely repayment of debt remains vital.
The rating are dependent on upholding company's market position along with sustenance of business volumes and margins. Company's long term debt repayment is important to improve financial risk matrix. The company's strong business performance in current stretched economic scenario - challenges on demand front - remains vital for 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. 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 three independent director, out of which three 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. On 1st July 2019, Mr. Shehryar Faruque resigned from the Board of Directors and as his replacement Mr. Yasir Masood joined the board as an executive director. Prior to this Mr. Yasir Masood was Group CFO associated with the company since 2002.

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.