Pioneer’s brown-field expansion of 2.2mln tpa likely to supplement its business profile: PACRA

April 1, 2019 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained the entity ratings of Pioneer Cement Limited at ‘A’ for long-term and ‘A1’ for short-term, with a ‘stable’ outlook forecast.

Pioneer Cement has a single manufacturing capacity, located near khushab in north region.

The Company’s sales are majorly driven by local market fundamental – an industry wide phenomenon. However, Pioneer exported a minuscule part to India and Afghanistan - viable export markets given geographical location of the company.

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.

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.

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.

Lately, the coal prices showed downward trend due to cut down of imports by China - which are expected to remain range bound in medium term. The aforementioned factors have affected the company’s sales and corresponding costs; which resulted in declining margins of Pioneer.

The upcoming energy projects (12MW WHRPP and 24MW coal power plant) are likely to assist bottom-line in future through power cost savings. The company’s brown-field expansion – 2.2mln tpa – is expected to commission in 4QFY19.

This will supplement company’s business profile given higher capacity utilization and adequate channeling of production.

The leveraging is expected to surge further in medium term on account of debt-driven expansion. The ratings also draw comfort from sponsor's financial strength.

The ratings are dependent on the management's ability to improve its business vis-à-vis financial risk profile and optimal utilization of existing lines.

Timely repayment of long term financing is essential in current stretched economic scenario - challenges on demand front - remains vital for ratings.

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