PACRA Updates Ratings of Pioneer Cement Limited

The ratings reflects the squeeze in the financial profile of the company. This emanates from the rise in the leveraging scale, as a result of the expansion related debt, which was exacerbated by the cost overrun. Company obtained a loan, after the syndicate, to fund the gaps. The planned COD was delayed, not yet announced. The management has represented that Pre-COD production is coming and COD would be achieved soon. Also, 12MW WHRPP and 24MW coal power plant are part of this project; currently facing delay where performance guarantee tests are done. Delay was seen due to restricted travelling of plant supplier's team for finalization of related modalities. After CoD of these projects, the company expects sizable savings in operational expenses in FY21 and on wards. In the absence of any fresh equity injection into the company, the coverages have been dampened. Furthermore, significant decline in sales has been observed along with Company's margins. During 9MFY20 Pioneer Cement recorded Gross Loss of PKR 58mln followed by Net Loss of PKR 523mln. The management represented volumetric sales recorded good growth in March and April-20; same growth trend expected in future. Slashed key policy rate will provide notable savings in finance costs which along with improved FCFO will enhance coverage. The Company’s sales are majorly driven by local market fundamental - trend followed by all cement players in north region. However, slow local demand and expanded capacity resulted in depressed cement prices (especially in north region). Local capacity utilization already recorded dip to 65% in 1HFY20 (FY19: 68%). This will be further impacted amid COVID-19 outbreak and country wide lock down observed. Though construction sector began operations but low demand has been seen. Curtailed key policy rate will provide much needed breathing space to the sector. The Company's business performance in muted; local demand remains vital with focus on sustaining margins. Optimal capacity utilization and adequate channeling of volumes from upcoming new line are necessary to support financial risk profile.
The revision in ratings captures the strains in the financial profile. It is important to (i) improve equity base in line with the enhanced leveraging, ii) cash flows generation iii) margins, and (ii) optimal utilization of existing and upcoming line. Timely repayment of mark up and principal is essential for the ratings. The company's business performance in current stretched economic scenario - challenges on demand front - remained vital.

About the Entity
Pioneer Cement is an affiliate of Mega group. The group owns 47% stake in Pioneer Cement through Vision Holding Middle East Limited. The group, led by Mr. Habibullah Khan, has key interest in shipping and logistics business, in addition to exposure in real estate, ports terminal), food and energy sectors. Pioneer Cement is listed on PSX and has a well spread shareholding pattern.

The overall control of the Company vests in ten-member board of directors including the CEO including three independent directors. Mr. Sajid Feroze was appointed Chief Executive Officer of the Company by the Board of Director in place of Mr. Arif Hamid Dar w.e.f March 01, 2020.