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PACRA Maintains Entity Ratings of Kohat Cement Company Limited

Rating Type Entity
(27-Jan-22 )
(12-Feb-21 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Positive Stable
Rating Watch - -

Kohat Cement’s ratings reflect its good market position in cement industry. The company's market share in north region rose to 9.6% after successful completion of brown-field expansion of 2.3mln tpa, last year. The Cement sector’s dispatches have recorded splendid growth and surged by 21% in FY21 as demand in the domestic market accelerated. Export is another avenue. Industry-wide exports have gone up as a new export window is created in the Bangladesh market. The industry’s future demand outlook is positive, in view of the infrastructure projects in the pipeline. The Company’s revenues witnessed an increase (1QFY22: PKR 6.8bln, FY21: PKR 24bln, FY20: PKR 11.3bln) attributed to an uptick in sales volumes, positive price indicators and, reinvigorating economy. Margins in 1QFY22 also improved on account of recently added more efficient Line-IV. Company aims to optimally utilize the recently expanded line IV, in order to cut off direct cost. The Company managed to recoup previous losses and reported profits of PKR 1.3bln and PKR 3.5bln in 1QFY22 and FY21 respectively. BMR of Line-III is underway that would cost ~PKR 650mln, and will be financed through equity. Company's leverging has reduced as the repayments of long term loan for line IV has started taking the debt/equity ratio in a comfortable position ~19% in 1QFY22 (FY21: 21.4%, FY20: 27%). In order to participate in current boom in cement industry management has announced further green field expansion of 7,800-10,000 TPD, near Khushab. Estimated cost of project is ~PKR 28bln out of which ~60% will be debt financed. Financial Close is expected to be achieved by Mar-22. The company has an available short term limit of ~PKR 3.3 billion out of which ~86% remained unutilized which shows company’s low reliance on short term borrowings. The company’s fairly low leveraging, healthy liquid investment book provides comfort to the ratings. Company own investment properties along with a significant amount of liquid assets having a book value of ~PKR 4.1bln and ~PKR 5.3bln respectively, which mitigates the financial risk factor to a large extent.
The ratings are dependent on upholding of company’s market position in addition to sustenance of business volumes and margins along with good governance practices. The company's strategy to keep a moderate level of leveraging remains imporatnt for the ratings. .

About the Entity
Kohat Cement, operates as the fourth largest cement manufacturer in the north region with total cement capacity of 5.3mln tons p.a. Kohat Cement, listed on PSX, is majority owned by ANS Capital (Pvt.) Ltd. (55%) – sponsor family’s majority owned company. The overall control of the company vests in eight member board of directors (BoD) including the chairman – Mr. Aizaz Mansoor Shiekh and the Chief Executive Officer, Mr. Nadeem Atta Sheikh.

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.