The Pakistan Credit Rating Agency Limited
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Hashim Yazdani

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PACRA Upgrades Entity Ratings of Awan Trading Company (Pvt.) Limited

Rating Type Entity
(19-Aug-23 )
(19-Aug-22 )
Action Upgrade Maintain
Long Term A- BBB+
Short Term A2 A2
Outlook Stable Positive
Rating Watch - -

The rating upgrade depicts the Company’s notable operating history along with its ability and commitment to perform during the ongoing economic slowdown. Awan Trading Company holds a significant market share in providing imported coal to local players in the cement, textile, steel and power sector. The Company has arrangements with various global suppliers of Indonesian, South African and Russian coal. Recently, the Company has also supplied Afghan coal to local power plants. Being comparatively inexpensive than other imported coal, the trend of using Afghan coal for power generation in the industry is on the rising trend. The Company maintains adequate stock of coal in rented/custom bonded warehouses to meet the demand of the consumers. Currency fluctuation and pricing of coal in the international market impact the Company’s risk profile which is mitigated through passing on the price impact to the consumers. The local economy reported a significant decline in coal imports (9MFY23: 6mln MT, 9MFY22: 12mln MT, FY22: 32mln MT) owing to a ~32% decline in coal consumption of the country. Alternatively, the Company’s coal imports increased ~15% from ~0.843mln MT during FY22 to ~0.973mln MT during FY23. There has been a stable rise in sales volume of the Company (FY23: 1.035mln MT, FY22: 0.905mln MT, FY21: 0.870mln MT) with growing demand of Afghan coal in the industry. Net Revenues of the Company reported an increase of ~101% (9MFY23: PKR 46,339mln, 9MFY22: PKR 23,005mln) as a result of price hikes in the global market of the commodity which was successfully passed on to the local consumers. Furthermore, the Company has reported impressive gross margins that are on a growing trend. The company has moderately utilized sizable lines (funded and un-funded) available from different banks to cater to suppliers’ demand. To further support the liquidity position, the Company has made short term investments in TDRs (March 2023: PKR 532mln, June 2022: PKR 370mln) with the intention to enhance it in the future.
Stable growth in sale volumes of the Company over the years backed by positive impact from the pricing of the commodity leading to noteworthy margins has contributed towards the rating upgrade. Furthermore, with growing potential use of Afghan coal in the power and cement sector and expected economic recovery, the coal consumption in the local market will revert. Hence, making room for the Company to further boost its sales volume. Thus, further strengthening the performance of the Company.

About the Entity
Awan Trading Company (Pvt.) Limited was established in October 1992. However, it remained dormant for several years till 2002. The company is engaged in import and trading of coal. The overall control of the company vests in four-member board of directors (BoD) including the Chief Executive – Mr. Govind Ram. He is associated with the company since its inception and is accompanied by management having long association with the company.

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.