Karachi, March 31, 2016: JCR-VIS Credit Rating Company Limited has assigned entity ratings of ‘A+/A-1’ (Single A Plus/A-One) to Attock Cement Pakistan Limited (ACPL). Outlook on the assigned ratings is ‘Stable’.
The assigned ratings to ACPL incorporate low financial risk as manifested in sound liquidity, capitalization and profitability metrics. The ratings also reflect strong financial profile of the parent entity, Pharaon Investment Group Limited Holding S.A.L., having diversified interest in multiple sectors. Moreover, adequate corporate governance as evident from satisfactory board oversight, stable & professional management team and adequate IT and controls infrastructure provide support to ratings.
Favorable industry dynamics is also a key rating factor. As per research conducted by CEMTEC, Pakistan is amongst the three Cement Hotspots in the world where demand is expected to grow at its fastest. Growth in local demand is expected to be driven by initiation of infrastructure projects under China Pakistan Economic Corridor and private sector housing schemes. Given the favorable demand outlook, four cement manufacturers (including ACPL) have announced expansion with additional capacities representing roughly 16% of existing capacity. Additional capacities may pose a risk but industry players anticipate growth in domestic demand to largely absorb additional capacities.
Capacity utilization of ACPL has remained over 100% during the last five years vis-à-vis 75% in the North region and 87% in the South region. Ability to tap export market has allowed the company to achieve over 100% capacity utilization which results in improved efficiencies. Going forward, ACPL has announced expansion of a new production line which will increase rated capacity by 67%. New production line will be funded through a mix of debt and equity. Even after accounting for debt being acquired to fund expansion, cash flows remain adequate and gearing remains below 1(x). Moreover, Debt Servicing Coverage Ratio is expected to remain over 1(x) even after sensitizing for lower than projected gross margins.
Ratings are also underpinned by company’s brand strength and market position as the second largest player in the South market having almost one-fourth market share in terms of dispatches. Net sales of the company have grown at a CAGR of 11.3% over the last five years primarily on account of higher retention prices. While export sales have on average represented around one-third of total dispatches over the last four years, growth in local dispatches in the ongoing year (1HFY16) and diversification into new export markets have compensated for decline in exports due to anti-dumping duty imposed on exports to South Africa. Profitability of the company has witnessed healthy growth in FY15. Going forward, profitability metrics of ACPL for FY16 are expected to improve in view of change in sales mix towards local sales and further decline in input prices (lower coal prices and decline in KE tariff).
For further information on this rating announcement, please contact the undersigned (Ext: 501) or Mr. Jamal Abbas Zaidi (Ext: 516) at 35311861-70 (10 lines) or fax to 35311873.
Applicable Rating Criteria: Industrial Corporates - October 2003
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