The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Maintains Entity Ratings of Bestway Cement Limited

Rating Type Entity
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Bestway Cement’s ratings reflect its leading position in the market emanating from its highest market share in north region. The Company's brown field expansion and successful mergers in the past assisted to maintain its position. Due to pandemic corona virus economic activities has slow down thus resulted in the drop of local demand, export is another avenue. Due to excess capacity from recent industry expansion resulted in depressed cement prices (especially in north region). Industry wide exports have gone up. During 9MFY20 the profitability of the company took a significant dip where margins deteriorated attributable to depressed prevailing cement prices along with muted local demand has affected the company's sales volume due to the aforementioned industry dynamics. Overall industry wide local dispatches increased significantly in July-20 as the government has taken steps towards public sector development projects and this will further improved in future as new projects are coming. The Company’s ratings are strengthened by the sustainable dividend income from its strategic investment in United Bank Limited (UBL) in which company is holding 7.65%. The company’s financial risk is categorized by efficient working capital management in terms of both cashflows and short-term borrowing. The company is re-profiling its debt book by converting short term debt into long term debt which will not impact the leveraging ratio and have positive impacts on current ratio. The chance of recovery in near future depends on agreement on cement prices, energy prices (not expected to increase), and key policy rate that is expected inch down. These will give breathing space to sector.
The ratings also draw comfort from the strong sponsor support (Bestway Group). The ratings are dependent on upholding of company’s leading market position along with sustenance of business volumes and margins. The company's good business performance as compared to other players in current stretched economic scenario - challenges on demand front - remains vital for ratings.

About the Entity
Bestway Cement operates as the largest cement manufacturer of the country with total cement capacity of ~10.7mln tons p.a with the market share of 22.7% in the north region. Bestway Cement, listed on PSX, is majority owned by Bestway Group (BWG) UK (77%), mainly through corporates (60%), followed by individual (~17%). The Company's eight member board comprises mainly BWG nominees. Two directors are Bestway Cement's executives (including CEO) while six are non-executive directors including two independent members. The board’s Chairman Mr. M. Anwar Pervez is an experienced professional, also a founding member of Bestway Group. The CEO, Mr. Zameer Mohammed Choudrey, is a Chartered Accountant, associated with the group since 1984, supported by a team of experienced professionals.

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.