PACRA Maintains Entity Ratings of Cherat Cement Company Limited

The ratings of Cherat Cement Company Limited (“Cherat” or “the Company”), reflects a notable position in the cement industry, with a market share of ~7%, primarily concentrated in the northern region of Pakistan. The cement industry of Pakistan faced significant challenges during FY24, primarily driven by economic pressures, political instability, and a decline in public sector development program (PSDP), all of which adversely impacted the construction sector. The overall cement industry showed modest growth of ~2%, reaching 45.3 million tons by the end of FY24, compared to 44.6 million tons the previous year. While local sales volumes declined by ~5% (FY24: 38.2 million tons, FY23: 40.0 million tons), export dispatches saw a significant increase of around 56%, reaching 7.1 million tons, compared to 4.6 million tons in FY23. A similar trend continued in 1QFY25, with local dispatches recording a decline of ~20% (1QFY25: 8.1 million tons, 1QFY24: 10.1 million tons), while export dispatches grew by ~22% (1QFY25: 2.1 million tons, 1QFY24: 1.8 million tons). Overall, the cement industry faced a 14% decline in dispatches during the first quarter of FY25. For Cherat Cement, total dispatches during FY24 stood at 2.627 million tons (FY23: 2.871 million tons), reflecting a decline of ~8%. In 1QFY25, the Company’s dispatches were recorded at 0.588 million tons (1QFY24: 0.699 million tons), registering a decline of ~16%, aligning with the overall industry trend. Despite the decline in volumes, Cherat’s revenues increased to PKR 38,434 million in FY24, driven by upward adjustments in cement prices (FY23: PKR 37,386 million). However, in 1QFY25, sales declined by ~4%, reflecting the lower dispatch volumes during the period. The Company’s profitability showed significant improvement during FY24, reflecting its strong operational efficiency. Gross margins improved to around 31%, up from 27% in FY23, while net margins increased to 14%, up from 12% in FY23. In 1QFY25, the Company continued to demonstrate operational improvements, with gross margins reaching ~40% and net margins climbing to 30%. These improvements highlight Cherat’s ongoing focus on operational excellence, cost control, and efficient resource management. Cherat’s financial leverage has significantly decreased over recent years, standing at ~18% at the end of September 2024, compared to ~50% in FY22. This reduction is a result of the early repayment of loans, improving the Company’s capital structure and financial stability. Furthermore, in response to the ongoing economic downturn, the management has decided to delay the greenfield expansion project, reflecting a cautious approach to capital expenditures in the current climate. Cherat’s liquidity profile remains strong, supported by healthy cash flows and improved coverage ratios, ensuring the Company’s ability to meet its financial obligations. Additionally, the ratings benefit from the robust financial position of the Company’s sponsor, Ghulam Faruque Group (GFG), a well-diversified industrial conglomerate with interests across multiple sectors, including cement, sugar, packaging, software solutions, air conditioning, and specialized engineering equipment.
The Company's ratings depend on its ability to maintain market position, sustain business volumes, preserve margins, and optimize production capacity utilization. Upholding current financial performance amidst the challenging economic environment and demand pressures will be crucial for the ratings, going forward.

About the Entity
Cherat Cement, a Ghulam Faruque Group (GFG) company, began operations in 1985. It is majority-owned by GFG through associated companies and family members. The Company is managed by an eight-member Board of Directors, including CEO, Mr. Azam Faruque, who has been with the Company since 1992 and is the grandson of Ghulam Faruque.