February 20, 2020: VIS Credit Rating Company Limited has assigned initial 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. Cement sector has recently entered competitive phase with increasing capacities exerting pressure on selling prices which has been compounded by rising cost of inputs.
Sizeable export growth has supported capacity utilization particularly for South based players. Demand patterns synchronizing with substantial supply side dynamics will be important for improvement in sector dynamics.
In this regard, proposed commencement of infrastructure projects would support dispatches and sector outlook. 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 liquidity and capitalization indicators. LCL’s efficient operations, strong balance sheet and surplus liquidity have facilitated in maintaining a satisfactory profitability profile despite challenging operating environment.
Profitability indicators (ROAA and ROAE) are expected to revert to normal levels over the medium term once dividend income from investments materializes and cement sector dynamics improve. Strong liquidity profile is evident from healthy cash flows, strong coverages and surplus liquidity on balance sheet.
Moreover, low leverage indicators, conservative financial policy and healthy internal capital generation depicts sound capitalization profile.
Ratings remain dependent on maintaining a healthy financial profile and materialization of diversification benefits from investments undertaken.
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