Analyst
Hashim Yazdani
hashim.yazdani@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Maintains Entity Ratings of Kohat Cement Company Limited
Rating Type | Entity | |
Current (10-Jan-25 ) |
Previous (12-Jan-24 ) |
|
Action | Maintain | Upgrade |
Long Term | A+ | A+ |
Short Term | A1 | A1 |
Outlook | Stable | Stable |
Rating Watch | - | - |
Kohat Cement Company Limited (“KCCL” or “the Company”) ratings reflect the Company's consistent efforts to improve its performance in the cement industry by effectively managing costs and optimizing plant utilization. The sponsor's expertise, coupled with a strong operational history of over 30 years, further complements the ratings. Despite economic and political challenges, the local cement industry witnessed a marginal growth in total dispatches of ~1.6% in FY24 as compared to the previous year. (FY24: ~45.295mln MT, FY23: ~44.584mln MT). The growth was backed by a ~55.72% increase in exports, whereas local dispatches dwindled by ~4.58%. This decline in the volumes was a consequence of soaring inflation in the country that led to demand constraints. KCCL reported Net Revenues of PKR ~38,648mln during FY24 (FY23: ~PKR 38,922mln) witnessing a negligible decline of ~0.7% because of a slight decline in the market share of the Company from 7.4% to 6.6% in an overall challenging industry dynamic. However, owing to cost optimization measures, the Company managed to continuously improve its Gross Profit Margin, reported at 29.1% during FY24 (FY23: 26.8%). Furthermore, the Company’s bottom line was supported by supplementary income from the investment portfolio, resulting in Net Profit Margin of ~23.0% (FY23: ~15.0%). The transition towards FY25 brought further challenges in the form of stressed industry dispatches that declined by ~13.5% in the first quarter as compared to the same period last year. The local dispatches witnessed a decline of ~19.7%, while exports dispatches registered a growth of ~22.4%. The Company’s local dispatches declined by ~22.2% during 1QFY25 in line with the plants operating in the North, leading to a fall in reported Net Revenues of ~8.86%. However, competitive pricing along with efficient cost management resulted in further improved margins. The infrastructure development is in process at the Company’s greenfield expansion project site in Khushab, whereas the import of plant and machinery will be procured once the economic environment stabilizes. Furthermore, the Company has commissioned a 10MW Solar Power Project at its Kohat site and is in the process of installing another 10MW, out of which 5MW is completed and operational. Moreover, the board has approved the setting up of a ~30MW coal-fired power plant at the site. This will allow the Company’s captive generation capacity to increase, leading to inexpensive power generation and lower reliance on the National Grid. Lastly, the Company’s low leveraging, along with strong coverages, further adds to the strong financial position.
The sponsors are committed to upholding the Company’s position amid challenges faced by the industry. Although the overall demand is expected to remain stressed owing to higher construction costs, the Company is optimistically navigating through the challenges by maintaining their financial performance through efficient cost management, which supports the assigned ratings.
About
the Entity
Kohat Cement Company Limited operates as the fourth largest cement manufacturer in the north region with a total cement capacity of 5.0mln tons p.a. Kohat Cement, listed on PSX, is majorly owned by ANS Capital (Pvt.) Ltd. (56.41%)—the sponsor family owned company. The overall control of the company vests in an eight-member board of directors (BoD), including the chairman, Mr. Aizaz Mansoor Shiekh, and the Chief Executive Officer, Mr. Nadeem Atta Sheikh.