D.G. Khan Cement’s upcoming industry wide expansions seems a challenge: PACRA

April 2, 2019: Pakistan Credit Rating Agency has maintained entity ratings of D.G. Khan Cement Company Limited at ‘AA-’ for long-term and ‘A1+’ for short-term, with a ‘stable’ outlook assigned to the company.

The ratings reflect company’s strong position in the cement industry emanating from its third highest market share in terms of capacity.

The company’s two existing manufacturing units (Khairpur Site and DG Khan Site) are operating at full capacity. The company lately added a new plant at South region-Hub of 2.9 M tpa capacity which is helping the company in improving its market share amid industry wide capacity expansions.

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.

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.

The company is eying new export fronts and exploring new opportunities to channel exports in cost-efficient manner because the Bangladesh market won’t stay for longer.

The ratings are dependent on upholding of the company’s business vis-à-vis financial risk profile. Any significant deterioration in the sector’s outlook particularly 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.