November 01, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Lucky Cement Limited (PSX: LUCK) at ‘AA+’ for long-term and ‘A-1+’ for short term with a stable future outlook, latest press release issued by VIS showed.
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 access to alternative sources of funds is outstanding and safety is just below risk-free Government of Pakistan’s short-term obligations.
To note, the previous rating action was announced on June 10, 2022.
The ratings assigned to LUCK draw support from the financial strength of the sponsor, Yunus Brother Group (YBG), which has a diverse presence across multiple sectors including Cement, Textiles, Power Generation, Chemicals, Automobile, Pharmaceuticals, Health Care, Real Estate, Entertainment, Food & Commodities and others.
The ratings take into account the change in the business risk profile of the cement industry given the decline in volumetric sales owing to dampened local market demand amid weak macroeconomic indicators.
However, the long-term outlook for the cement industry remains positive, given Pakistan’s status as a developing nation, low per capita cement consumption and easy domestic availability of limestone.
Further, the overall business risk profile of the company is strengthened by diversified investments in multiple sectors.
VIS foresees the other income to remain sizable in the future on the back of expected dividends from investment in the power segment which is yielding sound operating results.
The ratings also factor in a sound corporate governance framework underpinned by a robust organizational structure, an experienced management team and a strong commitment to transparency and disclosures.
The assessment of the financial risk profile reflects an uptick in revenues, sound margins and profitability indicators, sizable cash flow coverages and optimal capital structure.
Cashflow coverage indicators remained commensurate with the benchmarks for the assigned ratings.
Going forward, LUCK plans to incur an estimated capital expenditure of around Rs11 billion on renewable power projects during the rating horizon.
The entire CAPEX amount is expected to be funded by internally generated capital if SBP does not resume the subsidized financing scheme for renewable energy which is currently on hold.
Incorporating the same, gearing indicators are projected to stay in the same range during the rating horizon.
The ratings remain dependent on maintaining a healthy financial profile and materialization of diversification benefits from investments undertaken.
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Posted on: 2023-11-01T10:52:11+05:00
