Press Release

JCR-VIS Reaffirms Entity Ratings to Thatta Cement Company Limited

Karachi, October 27, 2017: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Thatta Cement Company Limited at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 30, 2016.

The assigned ratings to TCCL take into account continuous improvement across various financial and operational performance metrics. During FY17, TCCL recorded highest ever dispatches, supported by third party clinker sales, resulting in further improvement in liquidity and capitalization indicators. However, the ratings are constrained given the supply side dynamics in the cement sector particularly in the South region where capacity enhancements in the next year are substantial to alter market dynamics.

Demand outlook for the sector in FY18 is expected to post a stable growth on the back of ongoing infrastructure projects under China Pakistan Economic Corridor, demand for housing units and expected increase in economic activity in the election year. However, JCR-VIS expects industry margins to witness pressure in FY18 on account of full year impact of increase in coal prices and expected increase in competition, particularly in the South region. Additional capacities coming online in the South region in FY18 represents around 62% of existing capacities resulting in decline in capacity utilization from current levels. Given the excess capacities in key regional markets, scope for significant increase in exports at competitive prices remains limited.

During FY17, the plant achieved over 100% utilization levels compared to 75% in the preceding year. Moreover, plant efficiency has also witnessed improvement over the last two years. Higher cement dispatches and short-term demand for clinker from third parties facilitated the company in consolidating its financial position in the outgoing year. This is evident from gearing levels reducing by half and cash flows in relation to outstanding obligations having more than doubled during FY17. This would provide room for the company to face growing competition and increase in coal prices. The management of leverage and liquidity indicators within prudent levels would continue to be important, going forward.

Liquidity profile of the company is considered adequate in view of improving cash flows in relation to outstanding obligations. Moreover, current ratio and profile of trade debts has remained at adequate levels. With improvement in cash flows, a sizeable portion of existing debt on balance sheet was prepaid during FY17. This along with growth in equity on account of retained profits has translated into a decline in leverage indicators.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) or the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.

Jamal Abbas Zaidi

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited