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PACRA maintains entity ratings of KOHC

PACRA maintains entity ratings of KOHC
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January 13, 2025 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Kohat Cement Company Limited (PSX: KOHC) at A+ for the long term and A1 for the short term.

The agency has also provided a Stable outlook forecast, according to the latest press release issued by PACRA.

KOHC ratings reflect the company's consistent efforts to improve its performance in the cement industry by effectively managing costs and optimizing plant utilization.

The sponsor's expertise, coupled with a strong operational history of over 30 years, further complements the ratings.

Despite economic and political challenges, the local cement industry witnessed marginal growth in total dispatches of around 1.6% in FY24 as compared to the previous year (FY24: approximately 45.295mn MT, FY23: around 44.584mn MT).

The growth was backed by an approximately 55.72% increase in exports, whereas local dispatches dwindled by around 4.58%.

This decline in the volumes was a consequence of soaring inflation in the country that led to demand constraints.

KCCL reported net revenues of around Rs38,648 million during FY24 (FY23: approximately Rs38,922mn), witnessing a negligible decline of around 0.7%.

This was due to a slight decline in the market share of the company from 7.4% to 6.6% in an overall challenging industry dynamic.

However, owing to cost optimization measures, the company managed to continuously improve its gross profit margin, reported at 29.1% during FY24 (FY23: 26.8%).

Furthermore, the company’s bottom line was supported by supplementary income from the investment portfolio, resulting in a net profit margin of ~23.0% (FY23: around 15.0%).

The transition towards FY25 brought further challenges in the form of stressed industry dispatches that declined by approximately 13.5% in the first quarter as compared to the same period last year.

The local dispatches witnessed a decline of around 19.7%, while export dispatches registered a growth of approximately 22.4%.

The company’s local dispatches declined by around 22.2% during 1QFY25 in line with the plants operating in the North, leading to a fall in reported net revenues of approximately 8.86%.

However, competitive pricing along with efficient cost management resulted in further improved margins.

The infrastructure development is in process at the company’s greenfield expansion project site in Khushab.

The import of plant and machinery will be procured once the economic environment stabilizes.

Furthermore, the Company has commissioned a 10MW Solar Power Project at its Kohat site and is in the process of installing another 10MW, out of which 5MW is completed and operational.

Moreover, the board has approved the setting up of a around 30MW coal-fired power plant at the site.

This will allow the company’s captive generation capacity to increase, leading to inexpensive power generation and lower reliance on the National Grid.

Lastly, the company’s low leveraging, along with strong coverages, further adds to the strong financial position.

The sponsors are committed to upholding the company’s position amid challenges faced by the industry.

Although the overall demand is expected to remain stressed due to higher construction costs, the company is optimistically navigating through the challenges.

It is maintaining its financial performance through efficient cost management, which supports the assigned ratings.

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Posted on: 2025-01-13T12:27:52+05:00