Press Release

VIS Credit Rating Company Maintains Entity and Bank Loan Ratings of Power Cement Limited

Karachi, October 25, 2019: VIS Credit Rating Company Ltd. has maintained entity ratings of Power Cement Limited (PCL) at A-/A-2 (Single A Minus/A-Two). Bank loan rating (blr) of PCL’s secured bank loan facility of Rs. 16.2billion obtained to fund Line 3 expansion of 7,700 Tonnes per day has also been maintained at ‘A (blr)’ (Single A (blr)). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. The previous rating action was announced on October 02, 2018.

Revision in rating outlook reflects weakening in macroeconomic indicators and resultant impact on sector dynamics which is expected to affect the company’s debt servicing ability over the rating horizon. Ratings are underpinned by demonstrated track record of support from parent entity and sponsor family reflected in the provision of interest-free sponsor loan in the past, project cost overrun support and debt payment shortfall support provided for line III expansion.

PCL has completed the installation of 7,700 TPD clinker production plant and 8,500 TPD cement production plant. The plant has been procured from FLSmidth & Co. (Danish global engineering company). Market position is expected to improve significantly with commencement of new line.

Business risk profile incorporates cyclical nature of the cement industry. The cement sector has now entered a competitive phase with slowing demand growth and increasing capacities exerting pressure on selling prices which has been compounded by rising cost of inputs. Given the sizeable expected contraction in the large scale manufacturing sector in FY20 along with continuity of high fiscal deficit, cement dispatches are expected to remain under pressure in FY20. Demand patterns synchronizing with excess supply side dynamics will continue to be an important rating driver, going forward. Business risk profile is supported by export potential available for players operating in the South Zone. Resultantly, capacity utilization of Southern players has remained relatively higher vis-à-vis Northern players.

Given the higher market share and improvement in gross margins post commencement of line III expansion, revenues and profitability are projected to increase on a timeline basis. Sales mix is projected to be supported with export market given expected slowdown in domestic economic environment of the country. However, increasing competition with excess capacities and economic slowdown along with high finance cost is likely to affect profitability and cash flows which may, to some extent, impact the debt service ability. Leverage indicators are expected to continue to remain elevated and only gradually reduce over the rating horizon. Assigned ratings are underpinned with the contingent sponsors’ support for debt servicing and realization of higher market share and gross margins commensurate with the new plant efficiencies.

For further information on this rating announcement, please contact the undersigned (Ext: 207) at 35311861-70 (10 lines) or fax to 35311873.

Jamal Abbas Zaidi

Applicable Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (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.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.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited