Press Release

VIS Reaffirms Entity Ratings of Power Cement Limited

Karachi, December 23, 2024: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Power Cement Limited (‘PCL’ or ‘Power’ or ‘the Company’) at ‘A-/A2’ (Single A minus/A Two). Medium to long term rating of 'A-' indicates good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remains ‘Stable’. Previous ratings action was announced on December 27, 2023.

PCL, previously known as Al-Abbas Cement Limited, was incorporated as Essa Cement Industries Limited in 1981 as a private limited company and was converted into a public limited company in 1987. The Company was acquired by Arif Habib Group in 2010 and renamed as Power Cement Limited. PCL is listed on Pakistan Stock Exchange Limited with the head office situated in Karachi, and factory located at Nooriabad in District Jamshoro, Sindh. The Company is engaged in manufacturing, selling and marketing of mainly Portland cement though it also produces other varieties of cement. PCL is part of the Arif Habib Group, a leading industrial and financial conglomerate in Pakistan. The Group holds interests in the securities brokerage, investment and financial advisory, private equity, investment management, fertilizer manufacturing, steel, real estate, energy, cement and textile mills.

Assigned ratings take into account the business risk profile of Pakistan’s cement sector, which is assessed as high to medium. This assessment reflects the sector's cyclical nature, its reliance on the construction industry, and exposure to energy price volatility. The industry operates within an oligopolistic market structure, with performance linked to economic conditions and government policies. Subdued domestic demand, influenced by slow economic growth, elevated interest rates, and taxation, has resulted in lower capacity utilization. The sector is further exposed to risks stemming from fluctuations in exchange rates, coal prices, and import regulations due to its reliance on imported coal. The ratings derive comfort from the sponsor’s strong support to the Company. The sponsors and associated undertakings have been reasserting their commitment by continuously injecting equity support through sponsor loans with debt servicing discretion given to the Company.

Ratings take into account the Company's financial risk profile, acknowledging revenue growth driven by expanded export volumes, while also noting the decline in domestic revenue resulting from reduced sales volumes. Gross margins showed stability due to cost efficiencies accruing from alternative fuel utilization; however, higher finance costs led to a net loss during the period under review. Liquidity metrics remain constrained, though improvements are noted through sponsor support in the form of quasi equity contributions. The capitalization profile reflects a decline in leverage and gearing ratios due to increased equity and reduced debt. Coverage metrics remain under pressure, although support from the sponsors mitigates immediate concerns.

Going forward, the assigned ratings remain sensitive to the sector’s recovery, contingent on favorable interest rate environment, revival of construction sector, and government policies. The Company’s ability to improve its capitalization metrics, enhance liquidity, and normalize coverage metrics will be important. Sponsor support, demonstrated through significant quasi equity contributions, will continue to underpin the assigned ratings.

For further information on this ratings announcement, please contact on 021-35311861-64 or email at info@vis.com.pk.

Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .