PACRA updates entity ratings of Pioneer Cement

June 08, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has updated the entity ratings of Pioneer Cement Limited (PSX: PIOC) at "A" for the long term and "A2" for the short term with a stable outlook forecast, latest press release issued by PACRA showed.

PIOC is a public limited company incorporated in February 1986 and commenced its operations in November 1994.

The company operates with three manufacturing lines, in the north region, with a capacity of 5.2 Metric Tons per Annum (MTA).

The total installed capacity of the cement industry in Pakistan is 80Mta with a further 7Mta of capacity in the pipeline.

This will take the total production capacity to 87Mta by FY24.

During 9MFY23 industry’s overall dispatches were recorded at 33.6 million tons, which declined by 17.7% compared to the same period last year.

While domestic uptake of cement reduced by 15.6%, a major decrease in volumes is witnessed in exports due to higher ocean freight and uncertain political and economic situation.

Though the dispatches are reduced, the gross profitability of the sector improved due to better translation of production cost and margins in selling prices.

The overall industry’s future demand outlook remains stable, in view of the infrastructure projects in the pipeline.

The company’s volume decreased by 18.5% during 9MFY23 in line with the industry trend.

However, the company clocked its net revenue at Rs27.8 billion (9MFY22: Rs22.5bn) showing 23% growth in revenue term due to better retention prices.

Despite the increased input costs, mainly energy, across the industry, the company's gross margins remain stable as it has substituted costlier imported coal with cost-effective local and Afghan-origin coal.

Due to better pricing and cost-effective measures the coverage ratios improved relying on improved free cash flows from operations.

The stable outlook of the company depicts improved free cash flows and hence the enhanced ability to repay timely.

However, it is important to note that the following factors; making good margins, sustaining cash flow generation, low leveraging, and optimal utilization of existing and new lines remain imperative for timely repayments as well as ratings.

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