Press Release

VIS Credit Rating Company Reaffirms Entity and Syndicated Bank Loan Ratings of Power Cement Limited

Karachi, November 30, 2021: VIS Credit Rating Company Ltd. has reaffirmed entity ratings of Power Cement Limited (PCL) at A-/A-2 (Single A Minus/A-Two). Bank loan rating (blr) of PCL’s secured syndicated bank loan facility of Rs. 16.2billion obtained to fund Line 3 expansion of 7,700 Tonnes per day has also been reaffirmed at ‘A (blr)’ (Single A (blr)). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 09, 2020.

Reaffirmation of ratings remains underpinned by the Company’s strong sponsor profile of Arif Habib Group and its demonstrated track record of support on a timeline basis. Cement industry outlook encapsulates stress on sector dynamics which has translated into downward pressure on ratings on account of significant increase in international coal prices amid post-pandemic recovery period due to global energy demand and supply shocks. With coal being a significant cost driver, cement players are likely to witness margin erosion in the short-term. However, ratings draw comfort from local demand dynamics which remain strong given government’s continued focus on promoting housing and construction sector. Outlook on exports remains depressed on account of increase in freight costs globally due to supply chain disruptions amid post-pandemic recovery period. Ratings draw comfort from the company’s continued focus on renewable energy projects for self-generation thus leading to cost-efficiencies going forward. PCL is currently finalizing agreements for installation of captive power plants driven by solar and wind energy with prospective bidders under Power Purchase Agreements (PPA), thus requiring minimal capital expenditure.

Assessment of financial risk profile incorporates significant growth in revenue during FY21 driven by increase in dispatches with commencement of Line III which has translated into sizeable improvement in market share. Sales mix depicts increase in exports on a timeline basis; however the company plans to reduce the share going forward given lower margins vis-à-vis local sales. Gross margins depict improvement during FY21 owing to higher retention prices and operational efficiencies of the new plant operations. Operating margins have also improved on account of exchange gain reported during the outgoing year, while selling and administrative expenses increased in tandem with sales growth. Finance costs were lower during FY21 vis-à-vis SPLY due to low interest rates which contributed in improving net margins. However, outlay of finance costs has resulted in constrained cash flow coverage leading to pressure on debt servicing. The same is expected to continue till production efficiencies ramp up. Nonetheless, shortfall in debt servicing was met through issuance of preference shares in FY21 and subsequent extension of sponsor’s loan at end-Q1’FY22 which provides comfort to ratings. Furthermore, sponsors have agreed to provide debt payment shortfall support during operations to local lenders for four years post commercial operations and for the entire tenor of the foreign loan, thus providing comfort to assigned ratings. Capitalization indicators have depicted improvement on account of issuance of preference shares; however the same remains on the higher side. Leverage and gearing levels are expected to exhibit gradual improvement with debt repayment and projected growth in profitability. Ratings remain dependent upon sponsor support to meet any shortfall in debt servicing going forward, while achievement of projected profitability is imperative for maintaining assigned ratings over the rating horizon.

For further information on this rating announcement, please contact Ms. Sara Ahmed (Ext: 207) or the undersigned (Ext: 306) at 35311861-66 or fax or email at info@vis.com.pk.




Faryal Ahmad Faheem
Deputy CEO




Applicable Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .