April 1, 2019 (MLN): Pakistan Credit Rating Agency has maintained entity ratings of Maple Leaf Cement Factory Limited at ‘A+’ for long-term and ‘A1’ for short-term, with a stable outlook assigned to the company.
The ratings reflect Maple's improving profile supplemented by 8% market share of the company in the north region. The company operates at 3.4mln tpa capturing market share of 6.2% in country's installed capacity.
The capacity expansion of 2.2mln tpa is at an advanced stage (expected CoD in 4QFY19). Post expansion, the company's market share will be 11% in north region. The investment in Maple Leaf Power (40MW coal based power plant) would assist company in reaping cost efficiencies.
During 1HFY19, industry dynamics reflect weakening on account of global fluctuation in prices of raw material (coal), depreciation of Pak Rupee, lower retention prices (especially in north region) and higher financing expenses.
Upcoming industry wide expansions of 11.7mln tpa (North Region only) commissioning by Sep-18 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 aforementioned factors have affected the company’s sales and corresponding costs; which resulted in declining margins of Maple. In pursuit of expansion, the company’s leveraging increased but expected to remain range bound. The improvement in financial risk matrix is considered essential for the ratings. The ratings recognize the company's seasoned management team, having sound technical stature and quality support infrastructure.
The ratings are dependent on the management's ability to improve its business vis-à-vis financial risk profile. Timely repayment of long term financing is essential in current stretched economic scenario and challenges on demand front – remains vital for ratings.
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