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 rating reflect its good market position in cement industry. The company’s market share increased to 7.2% on account of brownfield expansion – line IV where commercial production started in the last week of January, 20. New plant's planned commencement was scheduled in 2QFY20. The plant’s estimated cost is PKR 15bln for which financing is arranged with debt to equity of 41:59 – majorly equity driven. Additionally, Kohat cement has maintained portfolio of investment properties in line with the proportion of debt financing which are located on prime location in Lahore and valued for PKR 5.4bln as end-Jun,19. Management’s plan to comfortably channel the increased supply of cement from expansion remains vital. During 1HFY20, total industry despatches grew by 6.5% despite general slowdown in economy. Cement industry's average capacity utilization levels have reduced given capacity expansions coming online (~10 mln tpa in CY19). Going forward, expanded capacity challenge for the industry may prevail given macroeconomic easing out may take some time. Kohat cement's volumetric analysis reveals that total cement sales declined hence, impact carried forward to margins which declined significantly but still remained good when compared to peers operating in same region. The company has developing pressure on financial matrix indicated by significant drop in coverage ratio. The management is positive about managing the same by debt reprofile. Going forward, improvement in margins and coverage remain vital.
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 fifth largest cement manufacturer with total cement capacity of 5mln tpa (including 2.3mln tpa from commencement of Line IV). Kohat Cement, listed on PSX, is majority owned by ANS Capital (Pvt.) Ltd. (55%) - holding company owned by sponsors. Mrs. Hijab Tariq (widow of late Mr. Tariq Atta) own 17% in the company. The overall control of the company vests in eight member board of directors (BoD) including the Chairperson – Mr. Aizaz Mansoor Shiekh. Mr. Nadeem Atta Sheikh is serving as Chief Executive Officer for the company. The group has presence in real estate, entertainment, cement & hospitality sector.

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.