The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains the Entity Ratings of Cherat Cement Company Limited

Rating Type Entity
(10-Apr-21 )
(10-Apr-20 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Positive Stable
Rating Watch - -

Cherat Cement’s Ratings reflect its position in the market emanating from its major market share (7%) prominent presence in north region. Capacity expansion in past played a vital role to augment its position. The Cement sector’s despatches have recorded splendid growth over the last couple of months; surged around 16% to 28.6mln tons in the first half of the current fiscal year 20-21 as demand in the domestic market accelerated. Export is another avenue. Industry-wide exports (sizeable increase in South Region) have gone up as a new export window is created in Bangladesh market where the sector is exporting notable volumes of cement and clinker. The Company’s revenues witnessed an increase attributable to uptick in sales (end-Dec20: PKR 11.5bln, Jun20: PKR 17bln, end-Dec19: PKR 9.5bln). During 1HFY21, margins improved slightly from the Covid19 period. A significant drop in coal prices on the back of reduced demand during Covid-19, stayed within the range of $57-$67 along with the much-debated cut on FED duty supported the performance. Therefore; the company managed to recoup previous losses and reported profits of ~PKR 1.12bln for half-yearly financial statements after the periods where the company’s bottom line turned red i-e; FY20 & 1HFY20. The management has also planned BMR of Line-I to enhance the efficiency. Furthermore, company is also establishing a solar captive power plant of 13MW. The Company's leveraging is at an adequate level, especially with the repayments being made.The strengthening of business profile by achieving optimal utilization of production capacities is essential. Going forward, improvement in profitability for timely repayment of debt remains vital. The Positive Outlook captures the enduring steps being taken by the management. These are expected to benefit the ratings over the short horizon as the reported results catch up to the profile.
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.

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 six 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.

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.