PACRA Maintains the Entity Ratings of Habib Construction Services Limited | Assigns Positive Outlook

Habib Construction Services Limited “HCS or the Company” 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. The Company has a proven track record of successfully completing numerous public and government projects. HCS primarily focuses on large infrastructure projects, collaborating with various joint venture partners, including Chinese and Japanese firms, as well as local contractors. Recently, the Company has also shifted its focus toward multi-lateral financed and smaller-scale projects. As HCS operates on a tender-based income model, its revenue is closely tied to its ability to win bids. Consequently, working capital requirements fluctuate depending on ongoing projects, with performance guarantees being crucial. The financial health of the Company is dependent on project execution and timely completion. As per industry practice HCS relies significantly on non-funded banking lines and supplier credit for its operations, whereas the funded obligations remain minimal. The Company boasts a decent equity base, particularly in relation to its non-funded obligations. During FY24, the Company has secured a significant number of projects, few of them were completed and rest are underway, which will generate projected revenues over the coming years. The topline witnessed an extensive growth of ~220% and record a highest revenue since its inception which clocked at PKR 17.8bln (FY23: 5.56bln, FY22: 5.56bln). The positive outlook assigned for HCS reflects its enhanced financial and operational performance in FY24 and this upward trajectory is expected to persist, and translate the sustainable long-term growth, going forward. Regarding ongoing claims and disputes associated with the Lahore Orange Line Metro Train Project (Package-1), the Company is optimistic about the resolution of these claims, which could improve its liquidity.
The expansion of HCS's business is poised to enhance its future risk profile positively. However, HCS ratings remain vulnerable to the cyclical nature of the construction sector, particularly in light of political instability and a volatile economic environment. Timely project execution, along with the resolution of disputes related to the Orange Line Metro, will be crucial for improving the Company’s liquidity and ratings. Sustaining revenue growth while ensuring collection efficiency will also be essential for preserving its financial health. Additionally, any delays or stoppages in various projects related to Bahria Town could impact these ratings and remain a critical concern.

About the Entity
HCS 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, Kalma Chowk underpass & overhead bridge, Metro Bus projects in Islamabad, Lahore and Faisalabad, etc. 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.