January 01, 2019 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained entity ratings of Cherat Cement Company Limited at ‘A’ for long-term and ‘A1’ for short-term, with a ‘positive’ outlook forecast.
According to the rating agency, the ratings reflect Cherat Cement’s improving profile supplemented by strengthening market share of the company.
The company commenced line-II (1.3mln tpa) in Jan-17 and is about to complete another expansion (approximately 2.1mln tpa), doubling the company’s existing capacity.
The company has recently joined league of mid-tier cement player.
As per PACRA, the company’s revenues witnessed strong standalone growth primarily driven by full year utilization of Line-II.
The company’s high utilization levels, developments in achieving cost efficiencies and tapping new markets are a positive.
The company also incentivized dealers in order to enter new markets which lead to decline in margins when compared to peers.
During FY18, industry margins witnessed decline due to low retention prices, fluctuating international coal prices and lately increased import duty on coal.
This will assist in channeling enhanced volumes from new line in upcoming years.
The business profile of the company is likely to behave good in medium term on the back of healthy volumetric growth, first mover advantage and strong absolute EBITDA.
Leveraging has increased in pursuit of expansion. However, the comfort can be drawn from early repayment of existing debt and strong free cash flows generated to finance debt taken.
Moreover, the rating are dependent on upholding company's market position along with sustenance of business volumes and margins.
Company's long term debt repayment is important to improve financial risk matrix. The company's strong business performance in current stretched economic scenario – challenges on demand front – remains vital for ratings.
