May 6, 2021: VIS Credit Rating Company Limited has reaffirmed the entity ratings of ‘AA+/A-1+’ (Double A Plus/A-One Plus) to Lucky Cement Limited (LCL). The medium to long-term rating of ‘AA+’ signifies high credit quality; Protection factors are strong. The short-term rating of ‘A-1+’ signifies high certainty of timely payments; short-term liquidity including internal operating factors and/or access to alternative sources of funds is outstanding and safety is just below risk free Government of Pakistan’s short term obligations. Outlook on the assigned rating is ‘Stable’.
Assigned ratings incorporate LCL’s leadership position in the cement sector, diversified business risk profile, consistently strong operating performance, robust financial profile and sound corporate governance framework. Ratings assigned to LCL also draw support from strong financial profile and diversified presence of the Company’s sponsor, Yunus Brothers Group (YBG) which is a leading conglomerate having presence across multiple sectors including Cement, Power, Real Estate, Textiles, Chemicals, Pharmaceuticals, Healthcare, Food and Automotive Sectors.
Business risk profile incorporates cyclical nature of the cement industry. The demand for cement has started to rebound in H1’FY21, with dispatches growing by 15.7% during the period, notably higher than YoY growth of 2% posted in FY20. The industry’s future demand outlook is positive, in view of the infrastructure projects in the pipeline. Downside risk to profitability of cement industry participants is likely to emanate from more than expected elongation of the pandemic and potential lockdown situation.
Overall business risk profile is supported by core cement operations being complemented by investments in multiple sectors including Power, Automobile, Pharmaceutical, Polyester, Animal Health and Chemicals & Agri Sciences. VIS expects investments to significantly support earnings over the medium term reflecting a well-diversified business risk profile.
Assessment of financial risk profile incorporates healthy capitalization indicators. The quantum of debt has increased since our last review and the management has also projected further increase in the medium term to finance expansion projects; we have incorporated the same in our leverage projections and expect the same to remain aligned with the threshold for the assigned rating. Strong liquidity profile is evident from healthy cash flows, strong coverages and surplus liquidity on balance sheet. The ratings remain dependent on maintaining healthy financial profile and materialization of diversification benefits from investments undertaken.