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The Pakistan Credit Rating Agency Limited
Press Release

Date
02-Apr-21

Analyst
Anam Waqas Ghayour
anam.waqas@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Upgrades Entity Ratings of Gharibwal Cement Limited

Rating Type Entity
Current
(02-Apr-21)
Previous
(03-Apr-20)
Action Upgrade 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. The cement sector achieved tremendous growth in despatches specifically local despatches post Covid-19 pandemic economic slowdown. The revival of economic activity based upon the PSDP funded projects including the construction of dams & CPEC related civil construction projects. However, stressed price dynamics in the north region remains challenging for the profit margins. 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 also recorded growth owing to accelerated local demand and the sector is entering into new era of expansions. This will further impact the credit profile and burden the financial matrix of company. The likelihood of impact is considered high where quantum is directly correlated with operational strength and supported equity base. Curtailed key policy rate will provide much-needed room to flourish to the sector. The company's capacity enhancement plans are on an accelerated path owing to north region dynamics. The company’s business profile remained critical as per new era of expansions will change the industry’s dynamics and company may lose its market share if it won't take part in the current expansion phase. 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 increase if expansion would be financed with debt mix. The ratings draw comfort from sponsor families, having prime focus of the company.
The ratings are dependent on upholding the company’s business vis-à-vis financial risk profile in the current economic scenario. Industry's dynamics encompassing expanded supply, substantial decline in local demand amid country-wide lockdown 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 Limited, operating with cement capacity of 2.1mln tpa (market share: 4%). The company is majority-owned by Mr. Tausif Peracha (~54%), founder of Gharibwal Group, followed by Rafique Family (~33P%). 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 the 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.