The Pakistan Credit Rating Agency Limited
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Hashim Yazdani

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PACRA Maintains Entity Ratings of Kohat Cement Company Limited

Rating Type Entity
(26-Jan-23 )
(27-Jan-22 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Positive Positive
Rating Watch - -

Kohat Cement’s ratings incorporates its stable market position along with strong operational history. As of FY22, the Company occupies 7% share of total volumes sold during the period. Overall, the Cement sector reported a decline of 7.8% in total dispatches with significant contribution from decline in exports. Local dispatches dwindled by 0.9% on an annual basis. Similar trend was witnessed in quarterly dispatches of the current fiscal year with an overall decline of ~25% from the same quarter previous year. Going forward, the trend is expected to continue throughout the remaining fiscal year owing to economic constraints and political uncertainty. Additionally, the inflationary pressure is further driving the demand for Cement downwards. During FY22, the Company’s local dispatches were recorded at 3.55mln tons (FY21: 3.56mln tons) showing a negligible change. However, exports declined by 95.64% owing to the demand shrink in Afghanistan. Similar trend was witnessed in 1QFY23, with local dispatches declining by 20.2% and export dispatches by 65.8% compared to same period previous year. Alternatively, the Company’s Net Revenues increased (1QFY23: PKR 8,853mln, FY22: 32,877mln, FY21: PKR 24,057mln) owing to price hikes throughout the period. The Company successfully passed on the increase in cost to the customers resulting in improving margins. Furthermore, the Company’s low leveraged structure (12%) combined with negligible finance led to better profitability over the period. The Company has procured land for its planned greenfield expansion of 7,800-10,000 TPD near Khushab. The plant and equipment will be sourced once the economic conditions improve. Going forward, with declining trend in the cement sector, it is vital for the Company to maintain efficient utilization while maintaining its margins.
The company’s fairly low leveraging, healthy liquid investment book provides comfort to the ratings. Company owns investment properties having a book value of ~PKR 4.1bln which strengthens the financial profile. The ratings are dependent on upholding of company’s market position in addition to sustenance of business volumes and margins along with good governance practices. The company's strategy to keep a moderate level of leveraging remains important for the ratings.

About the Entity
Kohat Cement, operates as the fourth largest cement manufacturer in the north region with total cement capacity of 5.3mln tons p.a. Kohat Cement, listed on PSX, is majority owned by ANS Capital (Pvt.) Ltd. (55%) – sponsor family’s majority owned company. The overall control of the company vests in eight-member board of directors (BoD) including the chairman – Mr. Aizaz Mansoor Shiekh and the Chief Executive Officer, Mr. Nadeem Atta Sheikh.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.