The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains Entity Ratings of Habib Construction Services Limited

Rating Type Entity
(12-Oct-23 )
(12-Oct-22 )
Action Maintain Upgrade
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Habib Construction Services Limited “the Company or HCS” has been in the construction industry for many decades. The Company established its footprint and developed a strong brand equity in the construction business over the years. Historically the Company has successfully delivered multiple public and government projects of which the completion spanned a number of years. HCS mostly undertake large infrastructure projects in collaboration with different JV partners including Chinese, Japanese and few local contractors. However, HCS is also focusing towards multi-lateral financed and multiple small projects. Recently HCS has awarded sizeable number of projects, which span a number of years, and are in the process - providing projected revenues in the coming years, few big projects are in pipeline as well. HCS’s sustained improvement in business performance with growth in revenue and operating margins. During FY23, topline witnessed growth of 5.6% and clocked at PKR 5.9bln (FY22: 5.56bln, FY21: 3.03bln), the same trend is expected to continue going forward. The pipeline is healthy; therein for the sake of sustainable long-term growth. As the entire income is tender-based, revenue depends on the Company’s ability to bid successfully. Therefore, the working capital requirement also depends on the project in execution; wherein performance guarantees are essential. The company’s leveraging indicators are adequate and has more reliance on non-funded banking lines as well as supplier credit to facilitate its business. Debt is procured for the project financing, with reliance only on short-term working capital excluding long term debt. Equity base of the Company is strong, especially when compared with the non-funded obligations assumed by the Company. The expansion in business is expected to reflect positively on the future risk profile of the Company. The Company is affably low leveraged and the performance of the company rests with projects in hand and timely completion. Realization of disputed claims regarding Orange line project, delivered by the Company, can improve its liquidity, and positive developments has been made in this regard. Stoppage of various projects, related to Bahria Town Islamabad for uncertain time period will remain critical to the ratings. Company’s exposure to cyclicality and political instability in construction sector leads to volatility in projects pipeline and revenue generation, thus resulting in high business risk.
The ratings are dependent on the timely completion of projects with sufficient cash inflows and maintaining a low leveraged capital structure. Simultaneously marinating a healthy project pipeline. Any prolonged downturn in subdued business volume can negatively affect the ratings. Good corporate governance practice is considered essential.

About the Entity
Habib Construction Services (Public unquoted) Limited was established in 2009 and stands tall in the construction industry of Pakistan as the pioneer of "Fast Track" project execution culture. Significant construction projects to its credit are Lahore Ring Road, 2X2.5 MW hydel power project at Chashma, 17-storey Bahria Grand hotel, Benazir Bhutto international airport civil works, Beijing underpass Lahore, Kalima Chowk underpass & overhead bridge, Metro Bus projects in Islamabad, Lahore and Faisalabad, etc. HCS is registered as a public limited company. The CEO, Mr. Shahid Saleem, is considered the visionary leader behind the success of the company. The overall control of the company vests in three-member board of directors (BoD), all of whom have executive roles and there is no independent director.

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.