The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Upgrades the Entity Ratings of Cherat Cement Company Limited

Rating Type Entity
Action Upgrade Maintain
Long Term A+ A
Short Term A1 A1
Outlook Stable Positive
Rating Watch - -

Cherat Cement’s Ratings reflect its prominent presence in the cement sector emanating from its major market share (7%) predominately in the north region. The Cement sector’s dispatches have recorded splendid growth and surged by 21% in FY21 as demand in the domestic market accelerated. Export is another avenue. Industry-wide exports have gone up as a new export window is created in the Bangladesh market. The industry’s future demand outlook is positive, in view of the infrastructure projects in the pipeline. The Company’s revenues witnessed an increase (1QFY22: PKR 7.16bln, FY21: PKR 25.21bln, FY20: PKR 17.01bln) attributed to an uptick in sales volumes, positive price indicators and, reinvigorating economy. Margins in 1QFY22 also improved on account of recently added more efficient Line-III. The Company managed to recoup previous losses and reported profits of PKR 1.19bln and PKR 3.2bln in 1QFY22 and FY21 respectively. The financial risk profile incorporates healthy capitalization indicators, liquidity profile is evident from healthy cash flows and improved coverages. Construction of solar captive power plant and BMR of Line-1 is underway. The Company's leveraging is currently at an adequate level, especially with the repayments being made. However, the management has projected an increase in the medium to long-term debt to finance greenfield expansion projects costing PKR ~34bln, management is of view to maintain the overall debt quantum within the threshold for the assigned ratings. Further, the Ratings assigned to Cherat Cement also draw support from the strong financial profile of the Company’s sponsor, Ghulam Faruque Group having a presence across multiple sectors mainly including Cement, Sugar, Packaging, and specialized engineering equipment.
The ratings remain dependent on upholding company's market position along with sustenance of business volumes, margins and achieving optimal utilization of production capacities. Going forward, sustainability in profits for timely repayment of debt remains vital.

About the Entity
Cherat Cement - a Ghulam Faruque Group (GFG) Company - commenced operations in 1985. The company is engaged in the manufacturing, marketing and sale of Ordinary Portland Cement. The company is majority owned by GFG through associated companies and family members. The overall control of the company vests in eight member Board of Directors (BoD), including the CEO. The BoD comprises six non-executive directors, including three independent directors, out of which three are Ghulam Faruque family members. Mr. Azam Faruque, the CEO, is the grandson of Mr. Ghulam Faruque, and has been associated with the company since 1992. Mr. Faruque is supported by a team of professionals with relevant experience in the cement industry.

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.