PACRA Upgrades the Entity Ratings of Habib Construction Services Limited

Habib Construction Services Limited ("HCS" or "the Company") has established a well-entrenched position in Pakistan's construction industry since 2009, underpinned by a consistent record of disciplined and timely project execution. Its portfolio spans expressways, ring roads, flyovers and underpasses, airport and terminal facilities, mass transit corridors, and high-rise commercial and hospitality developments, for public and private sector clients. The Company pursues large-scale infrastructure packages in collaboration with local and foreign joint venture partners. HCS has also expanded into finishing works, having completed the CBD Lahore project, including the sourcing and installation of digital screens, thereby diversifying its revenue streams. The upgrade reflects the Company's resilient business profile, with revenue sustained at its historical peak over the past three years and expected to remain broadly stable, supporting the reinstatement of its originally assigned rating. As of 1QFY27, the Company has eight projects in hand, notably the EPC contract for the Malir Expressway, two infrastructure packages at NSIT Phase-I, and institutional and green building works in Lahore, the majority of which are at an advanced stage and due for completion by end-CY26. The most recent addition is the Faisalabad Orange Line mass transit project (11.1 km, KM RD 9+200 to 20+300), undertaken as a subcontract from FWO, with contractual guarantees retained by the principal contractor. The project accounts for the bulk of the order book, is at a nascent stage of execution, and is targeted for completion by mid-CY27. As contracts are awarded through competitive bidding, revenue visibility remains contingent on the Company's ability to secure new mandates, while the sector remains exposed to funding, cost-escalation and payment-timing risks. In FY26, the Company's combined revenue, including JV contributions, remained broadly stable at PKR 17.6bln (FY25: PKR 19.2bln), as lower direct revenue of PKR 9.4bln (FY25: PKR 12.6bln) was partly offset by higher JV revenue of PKR 8.2bln (FY25: PKR 6.6bln). Gross and net margins improved to 16.1% (FY25: 11.3%) and 8.0% (FY25: 3.9%), underscoring the Company's selective bidding strategy, under which opportunities are pursued based on return potential. The Company maintains a conservative financial profile, with borrowings of PKR 151mln, entirely short-term running finance, translating into gearing of 2.1% against an equity base of PKR 7.1bln. Nevertheless, unfunded exposures remain material, in line with the inherent requirements of the construction sector, particularly for performance guarantees and other contractual commitments.
The rating remains sensitive to the timely execution of ongoing and recently awarded projects and the release of funds in line with project requirements, as any delays could elongate the working capital cycle. Sustaining the upgraded rating will further depend on the Company's ability to replenish its order book with fresh awards as existing contracts mature, thereby preserving and progressively strengthening the current revenue base while maintaining stable margins. Prevailing industry dynamics, particularly the pace of public sector development spending, the regularity of receipts from contracting authorities and the trajectory of input costs, will remain key monitorables. Corporate governance also warrants attention, as the Board comprises solely executive directors with no independent representation, leaving room to strengthen the oversight framework.

About the Entity
HCS was established in 2009 and has since earned a distinguished position in Pakistan's construction industry as a pioneer of the "Fast Track" project execution culture. Notable projects include the Lahore Ring Road, the 2x2.5 MW hydel power project at Chashma, the 17-storey Bahria Grand Hotel, civil works at Benazir Bhutto International Airport, the Beijing Underpass and the Kalma Chowk underpass and overhead bridge in Lahore, and the Metro Bus projects in Islamabad, Lahore and Faisalabad. The Company has recently extended into finishing works, completing the CBD Lahore project, including the sourcing and installation of digital screens. The CEO, Mr. Shahid Saleem, is widely regarded as the driving force behind its success. Overall control vests with a three-member Board of Directors (BoD), all in executive positions, with no independent director.