The Pakistan Credit Rating Agency Limited
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Abdul Wahab

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PACRA Maintains Entity Ratings of Gharibwal Cement Limited

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Gharibwal Cement's strength in its key markets. The Company has a market share of 4% in the north region with annual cement capacity of 2.1mln Tons. The company focuses on geographies closer to the plant location; Gujranwala division remained company’s home market. Lately, company's distribution costs went up amid stressed north region dynamics. Cement sector achieved second phase of expansion (18 mln tpa). However, slow local demand and expanded capacity resulted in depressed cement prices (especially in north region). Export is another avenue. Industry wide exports (sizeable increase in South Region) have gone up as new export window is created in Bangladesh market where sector is exporting notable volumes of cement and clinker. Cement sector's local capacity utilization already recorded dip to 65% in 1HFY20 (FY19: 68%). This will be further impacted amid COVID-19 outbreak and country wide lock down being observed. The likelihood of impact is considered high where quantum is directly correlated with tenure of lock down. Curtailed key policy rate will provide much needed breathing space to the sector. The company's cement dispatches increased to 0.854 mln M.Tons for 1HFY20 (1HFY19 : 0.794 mln M. Tons). However, depressed cement prices lead to decrease of 6% in net sales revenue. The company's capacity enhancement plans are still at halt owing to north region dynamics. The company’s business profile remained adequate on account of aforementioned factors while margins and profitability witnessed decline. Going forward, along with improvement in volumes, restoring operating and EBITDA margins at earlier healthier levels remains vital for the company. The financial profile remains adequate as long term leveraging expected to remain at the same level. The ratings draw comfort from sponsor families, having prime focus of the company.
The ratings are dependent on upholding of the company’s business vis-à-vis financial risk profile in current economic scenario. Industry’s dynamics encompassing expanded supply, substantial decline in local demand amid country wide lock down will negatively affect the ratings. The proactive measures taken by management in diluted north region dynamics will remain vital for holding ratings at the current level.

About the Entity
Gharibwal Cement Lim ited, operating with cement capacity of 2.1mln tpa (market share: 4%). The company is majority owned by Mr. Tausif Peracha (~56%), founder of Gharibwal Group, followed by Rafique Family (~27%). Gharibwal Group has interests in glass manufacturing, lubricants and real estate projects locally as well as abroad and shipping and truck manufacturing in Nigeria. The Company’s seven member BoD, including one independent director. Peracha family has four representatives, including CEO. Two other directors represent Rafique Family on board. Mr. Tousif Peracha, the CEO, is supported by a team of experienced individuals.

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.