Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
10-Jan-25 A+ A1 Stable Maintain -
12-Jan-24 A+ A1 Stable Upgrade -
26-Jan-23 A A1 Positive Maintain -
27-Jan-22 A A1 Positive Maintain -
12-Feb-21 A A1 Stable Maintain -
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.

Rating Rationale

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.

Key Rating Drivers

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.

Profile
Legal Structure

Kohat Cement Company Limited ("KCCL" or “the Company”) is a public limited company incorporated in Pakistan under the Companies Act, 1913 (now “Companies Act, 2017”) and is listed on the Pakistan Stock Exchange.

Background

State Cement Corporation of Pakistan established a 1,000 TPD cement line 1 in Kohat in 1983. The Government of Pakistan in open bidding in 1992 privatized the Company which was acquired by its present shareholders. In 1994, the Company got listed on the PSX. The new management headed by Aizaz Mansoor Sheikh undertook an extensive expansion of line 1 in 1996, enhancing the cement manufacturing capacity to 1,800 TPD. In 2005, the Company established a second line of 450 TPD for the manufacturing of white cement. While considering the demand of the economy, the Company kept expanding its manufacturing capacity to increase its market presence. Subsequently, in 2008, the Company completed the brownfield project of introducing line 3 of 6,700 TPD at the same site as the existing plant. Line 4, having the capacity to manufacture 7,428 TPD of cement, was added to the installed capacity in 2020 to cater to the growing demand and uphold the market share of the Company. Recently, in 2024, the Company has completed the BMR of line 3, enhancing its capacity to 7,064TPD. Apart from enhancing its cement manufacturing capacity, the Company has also been investing in solar and coal-fired power plants for inexpensive and uninterrupted supply of electricity to the plant along with lower reliance on the national grid.

Operations

KCCL is engaged in the production and sale of cement. It is an ISO 9001-2015 certified company with an installed capacity of ~4.81 million tons per annum of Grey Clinker and 135 thousand tons of White Clinker from 4 lines operating in Kohat. The Company's products include grey cement and white cement. It has a significant presence in the local market, especially in the North region, along with minor exports to Afghanistan. The head office of the Company is situated at 36-37 P, Gulberg-II, Lahore; further, the registered office and production facility are situated at Rawalpindi Road, Kohat, Pakistan.

Ownership
Ownership Structure

KCCL is majorly owned by the sponsor family through ANS Capital (Pvt.) Limited (~56.41%), where the ownership of ANS Capital (Pvt) Ltd resides within the family. The other major proportion of shareholding is of Mrs. Hijab Tariq, who owns ~17.17%. The remaining stake is dispersed amongst the general public and other entities.

Stability

The majority ownership of the Company has been held with the sponsoring family and has remained stable over the years. Furthermore, being the flagship company of the sponsors, the ownership is expected to remain stable. Additionally, the sponsors vision to stay ahead of the competition by adopting the latest technology with efficient and progressive teamwork shows the commitment of the owners towards the Company.

Business Acumen

The sponsors have a proven history of over 30 years of operating in the local cement sector, which is a testimony to their expertise. Furthermore, being a business-oriented family, the sponsors have other business interests belonging to different sectors, including Real Estate, Food and Entertainment.

Financial Strength

The sponsors other business interests, along with substantial investment property holdings, provide a stable stream of income that is consolidated at the group level, which derives their financial strength. Therefore, the sponsor's ability to financially support the Company is considered adequate.

Governance
Board Structure

The overall control of the Company vests in an eight-member board of directors, including the CEO. The board comprises 5 non-executive, 1 executive, and 2 independent members.

Members’ Profile

Mr. Aizaz Mansoor Sheikh is the Chairman of the board. He has been associated with the Company since 1992 and thus possesses vast experience in the cement industry. He is a seasoned developer and has successfully developed both residential and commercial projects. He is assisted by a team of qualified individuals possessing diverse skill sets and a long association with the board. Mrs. Hafsa Nadeem has represented the sponsoring family on the board since 2004. She is also engaged in the family's other business ventures and subsequently holds the position of director on the board of other family-operated companies. Mrs. Hijab Tariq is the on board of KCCL representing the sponsoring family. She has been actively involved in the board meetings and other businesses of the family, including textile and real estate investment and development. Mr. Muhammad Rehman Sheikh has been associated with the board since 2013 and represents the interest of the sponsoring family. Simultaneously, he is also looking after other business interests of the family. He is also on the board of ANS Capital (Pvt) Limited. Mr. Muhammad Atta Tanseer Sheikh has been a member of the board since 2011, representing the sponsoring family's interest. He is actively engaged in the Company's decision-making and also holds the position on the board committees. Mr. Ahmad Sajjad Khan is an engineer by qualification and has held the position of an independent director on the board since 2019. He possesses 42 years of vast experience in the design and construction of heavy mechanical complexes, including cement plants, waste heat recovery plants, coal-fired power plants, high-pressure boilers, etc. He is also a member of the Pakistan Engineering Council, along with having other affiliations with local bodies. Mr. Talha Saeed Khan has been an independent member on the board since 2019. He holds a postgraduate degree in economics, along with having vast experience of working with local and multinational banks in senior positions. He has also held the position of director on the board of other companies, including the Lahore Stock Exchange, Silk Bank, and Agri Tech.

Board Effectiveness

KCCL's board has formulated two committees: 1) the audit committee and 2) the Human Resource & Remuneration Committee (HR&R) to assist the management in related matters. Furthermore, the board conducts regular meetings as needed during the year to discuss and advise on matters relating to the Company's financial and operational performance.

Financial Transparency

Being a listed entity, the Company abides by the Code of Corporate Governance. The quarterly, half-yearly, and annual financial statements, along with necessary operational information and details, are timely prepared and made available to the shareholders. KPMG Taseer Hadi & Co., Chartered Accountants, conducts the external audit for Kohat Cement. "KPMG" is a QCR rated firm and is also in the "A" category of the SBP list of external auditors. They have expressed an unqualified opinion on the financial statements for the year ended June 30th, 2024.

Management
Organizational Structure

The organizational structure is divided into nine main functions. The functions reporting to the CEO are as follows: 1) Admin Head Office, 2) CSR, 3) HR, 4) Finance, 5) IT 6) Sales and Marketing. However, the functions reporting to GM are 7) Admin Plant, 8)Employee Services, 9) Plant Works.

Management Team

The management team is headed by Mr. Nadeem Atta, appointed as the CEO. He has been associated with the Company for 30 years and thus holds vast experience and knowledge of the local cement sector. He is also actively involved in the other business interests of the family and simultaneously holds the position of director on the board of associated companies. Mr. Nadeem is also present on the board of KCCL as an executive director. Mr. Khurram Shahzad is currently the CFO of KCCL. He has been associated with the Company since 2006 and was subsequently appointed as the head of finance. A qualified Chartered Accountant by profession, Mr. Khurram has expertise in finance, accounts, tax, corporate planning, budgeting, costing, and other related matters.

Effectiveness

The senior management has a ‘hands-on’ approach and thus involved in the day-to-day activities of the Company. The proper hierarchical structure and reporting lines ensure smooth and effective decision-making. The carefully designed organization structure ensures a flow of information along with efficient communication across divisions to provide feedback that can be incorporated to increase overall efficiency of the operations.

MIS

Kohat Cement has strong technology infrastructure with reasonably defined policies and procedures. The Company’s current operational modules include marketing, supply chain, and financial modules with comprehensive MIS quality. Various system-generated reports, including the cash flow/investment portfolio, daily management report, daily production summary and sale variance report, are reviewed by top management.

Control Environment

The Company has outsourced the internal audit function to M/s Crowe Hussain Chaudhury & Co. Chartered Accountants, who are considered suitably qualified and experienced. The internal audit function takes both regular and ad hoc services of risk management controls and procedures, the results of which are reported to the Audit Committee. Furthermore, the internal audit function is responsible for monitoring control systems and ensuring compliance with external and internal guidelines.

Business Risk
Industry Dynamics

The overall performance of the local cement industry has remained under stress throughout FY24, majorly due to the economic challenges faced by the country in the form of high inflation, peaking interest rates, and lower developmental activity. Furthermore, political instability resulted in lower PSDP spending, leading to further challenges faced by the construction sector, which was already adversely affected due to the rise in overall costs of inputs. Despite these challenges, the cement industry in Pakistan witnessed marginal growth of ~1.6%, reaching 45.3mln MT during the year ending June 30, 2024, compared to 44.6mln MT last year. Although the local sale volumes declined by 5% (FY24: 38.2mln MT, FY23: 40.0mln MT), the overall surge was driven by a significant rise in export dispatches of 56%, reaching 7.1mln MT, up from 4.6mln MT last year. A similar trend was witnessed during 1QFY25, with the local dispatches recording a decline of ~20% (1QFY25: 8.1mln MT, 1QFY24: 10.1mln MT), while export dispatches grew by ~22% (1QFY25: 2.1mln MT, 1QFY24: 1.8mln MT). Despite the decline in sales volumes, the local cement manufacturers are witnessing a rising trend in their recorded revenues due to the higher prices reflecting the increase in the cost of production that is being passed on to the consumers. As a result, cement manufacturers have successfully maintained their margins. The industry also witnessed a rise in installed capacity, which now stands at approx. 84.5mln MT per annum. However, based on the suppressed demand, the capacity utilization remained between 50-55% during FY24. Going forward, FY25 brings some relief for the industry in the form of consistent reduction in policy rates, declining inflation, a stable exchange rate, and gradual increase in SBP reserves along with political stability. However, the development activity in the form of construction projects to stimulate the economy is still on hold.

Relative Position

As per the Company’s local dispatches during FY24 of ~2.544mln MT (FY23: ~2.969mln MT), it occupies ~6.6% (FY23: ~7.4%) market share of the local cement dispatches of the industry. Owing to lower demand, the capacity utilization of the plant during FY24 stood at 50.3%, witnessing a decline from 59.2% during FY23. The Company has a strong presence in the North and Central Punjab region through its distribution network.

Revenues

The Company reported Net Revenues of PKR ~38,648mln during FY24, witnessing a negligible decline of ~0.7% on the back of fall in sale volumes of ~13.82% (FY24: ~2.586mln MT, FY23: ~3.001mln MT) which was somewhat compensated by an increase in sale prices. A similar trend was witnessed during 1QFY25 with Net Revenues reporting a decline of ~8.86% as compared to the same period the previous year (1QFY25: PKR ~10,084mln, 1QFY24: PKR ~11,064mln) whereas total dispatches declined by ~22.3% during the same period (1QFY25: ~0.592mln MT, 1QFY24: ~0.762mln MT). The local dispatches of the Company reported a decline of ~22.2% as compared to the industry's local dispatches decline of ~19.7%.

Margins

KCCL has been successfully maintaining its margins since FY21 owing to efficient cost optimization. During FY24, the Company witnessed a further improvement in reported Gross Profit Margin from 26.8% during FY23 to 29.1% during FY24 on the back of cost optimization measures. Similarly, during 1QFY25, Gross Profit Margins further improved to 42.8% as compared to 29.2% during 1QFY24. The reported Net Profit Margins have also shown continuous growth from 19.1% during 1QFY24 to 34.1% during 1QFY25. Supplementary income from the Company's short-term investment portfolio provided further benefit during period of high interest rates.

Sustainability

The Company is committed to managing its input costs towards sustainable performance. The Company has also announced greenfield expansion up to 7,800 TPD in Khushab, Punjab. The work on the expansion is yet to begin, but once completed, it will give further opportunity to capture the market share in the South region. BMR (pyro-process optimization) of the existing 6,700 TPD Grey Cement production line has been successfully completed, after which the production capacity has increased by 5.43% to 7,064 TPD and also reduced the coal consumption. After the successful installation and commissioning of the 10MW solar power plant, the Company is setting up a further 10MW solar power plant out of which 5MW is completed and operational at its plant site in Kohat. This solar power project will further reduce the dependence on the national grid, which shall not only play a significant role in cost savings but is also a huge step towards a greener and sustainable Pakistan. The Board has approved the setting up of 30MW (approx.) coal-fired power plant at Company’s plant site in Kohat. The contractors have been engaged, and the process of opening letter of credit is in progress. Installation and commissioning are anticipated to take eighteen months.

Financial Risk
Working capital

As of Sep 2024, the Company's Gross working capital days stood at 36 days (June 2024: 38 days, June 2023: 31 days) in line with the industry average, reflecting efficient working capital management. The Company finances its operations through equity, borrowings, and working capital with a view to maintaining an appropriate mix between various sources of finance to minimize risk. The management aims to maintain flexibility in funding by keeping regular committed credit lines. The Company has aggregate Running Finance / FATR facilities to finance working capital requirements.

Coverages

Owing to low reliance on borrowings coupled with improving financial performance backed by cost optimization measures, the Company's Interest Coverage (FCFO/Finance Cost +CMLTB +Excess STB) has improved continuously to 10.3x during 1QFY25 from 6.6x during 1QFY24. Improved profitability during the period has resulted in strong FCFO of the Company reported at PKR 7,662mln during FY24.

Capitalization

Total borrowings of the Company stood at PKR 2,245mln as of the end of September 2024. As a result, leveraging stood at 4.8%. Going forward, the Company’s leveraging is expected to increase in pursuit of expansion. However, it is expected to be comfortably managed through healthy cash flows.

 
 

Jan-25

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Sep-24
3M
Jun-24
12M
Jun-23
12M
Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 22,227 22,223 22,292 21,441
2. Investments 30,109 24,606 16,660 14,258
3. Related Party Exposure 530 532 170 0
4. Current Assets 11,637 11,482 10,408 7,652
a. Inventories 2,627 1,794 2,943 1,456
b. Trade Receivables 1,512 2,110 1,206 916
5. Total Assets 64,504 58,843 49,530 43,351
6. Current Liabilities 12,083 10,061 8,878 8,416
a. Trade Payables 1,491 1,828 713 1,325
7. Borrowings 2,245 2,153 3,183 4,251
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 5,646 5,539 4,859 3,437
10. Net Assets 44,529 41,090 32,610 27,246
11. Shareholders' Equity 44,529 41,090 32,610 27,246
B. INCOME STATEMENT
1. Sales 10,084 38,648 38,922 32,877
a. Cost of Good Sold (5,770) (27,391) (28,489) (23,065)
2. Gross Profit 4,314 11,256 10,433 9,812
a. Operating Expenses (227) (685) (572) (476)
3. Operating Profit 4,086 10,571 9,860 9,336
a. Non Operating Income or (Expense) 1,189 3,882 1,349 127
4. Profit or (Loss) before Interest and Tax 5,275 14,454 11,210 9,463
a. Total Finance Cost (116) (677) (740) (538)
b. Taxation (1,721) (4,883) (4,649) (3,901)
6. Net Income Or (Loss) 3,439 8,893 5,821 5,024
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 3,657 7,662 8,285 9,888
b. Net Cash from Operating Activities before Working Capital Changes 3,520 6,931 7,599 9,374
c. Changes in Working Capital 1,983 (352) (3,147) (1,192)
1. Net Cash provided by Operating Activities 5,503 6,579 4,452 8,181
2. Net Cash (Used in) or Available From Investing Activities (4,394) (4,962) (2,471) (7,093)
3. Net Cash (Used in) or Available From Financing Activities 91 (1,448) (1,529) (1,805)
4. Net Cash generated or (Used) during the period 1,200 169 453 (717)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 4.4% -0.7% 18.4% 36.7%
b. Gross Profit Margin 42.8% 29.1% 26.8% 29.8%
c. Net Profit Margin 34.1% 23.0% 15.0% 15.3%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 55.9% 18.9% 13.2% 26.4%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 32.3% 23.5% 19.0% 20.1%
2. Working Capital Management
a. Gross Working Capital (Average Days) 36 38 31 25
b. Net Working Capital (Average Days) 21 26 21 8
c. Current Ratio (Current Assets / Current Liabilities) 1.0 1.1 1.2 0.9
3. Coverages
a. EBITDA / Finance Cost 40.0 18.2 16.1 20.6
b. FCFO / Finance Cost+CMLTB+Excess STB 10.3 4.6 4.8 6.2
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 0.1 0.3 0.4 0.5
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 4.8% 5.0% 8.9% 13.5%
b. Interest or Markup Payable (Days) 91.9 76.3 102.9 100.7
c. Entity Average Borrowing Rate 16.8% 22.8% 18.4% 9.9%

Jan-25

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Jan-25

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Jan-25

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