Lahore, March 29, 2019 (PPI-OT): Askari Cement’s ratings reflect its sustained position in the cement industry. The Company has two existing cement manufacturing units (Nizampur and Wah) – operating with combined capacity of 2.7mln tpa, operating in North Region. The company recently completed BMR at Nizampur plant and installed WHR at Wah plant which helped Company to be more operationally effective. Upcoming industry wide expansions of 11.7mln tpa (North Region only) commissioning by Sep-19 and slowdown in the growth of local demand seems a challenge.
The demand needs to be up to secure companies’ margin. Export is another avenue. Industry wide exports (sizeable increase in South Region) have gone up due to muted growth in local demand. A new export window is created in Bangladesh market. Previously, cement exports were seen at its peak after financial crisis in 2008. The company was able to maintain growth trajectory trend in revenue in last few years. In the recent slowdown, the Company was successful to secure its margins mainly due to usage of local and Afghan coal; no exchange rate risk involved.
The planned expansion at Nizampur plant will be designed to operate at 100% local coal. It is vital for management to uphold business profile of the company by sustaining margins and improving volumes. Company is moderately leveraged and strong sponsor strength provides a comfort. Furthermore, cashflows provide good coverage to anticipate repayment. Going forward, leveraging is expected to increase in longer-term owing to expansion planned. The ratings take comfort from strong financial strength of Fauji Foundation – fourth largest sponsoring group in the cement industry.
The ratings are dependent on current positioning of the company’s business besides financial risk profile; strengthening of equity base is essential. Any significant deterioration in the sector’s outlook particularly any continuation of slowdown in economic growth, interest rate fluctuation and delay in infrastructure projects may affect the ratings. Industry’s dynamics encompassing expected challenges of substantial decline in local demand or deterioration in cement prices will negatively affect the ratings.
For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com