Press Release

JCR-VIS Assigns Ratings to Askari Cement Limited

Karachi, August 20, 2018: JCR-VIS Credit Rating Company Limited has assigned entity ratings of ‘A/A-1’ (Single A/A-One) to Askari Cement Limited (ACL). Outlook on the assigned ratings is ‘Stable’.

The assigned ratings incorporate strong sponsor profile of ACL which is a wholly owned subsidiary of Fauji Foundation one of the largest business conglomerates in the country. Strong probability of timely support from sponsors has been factored into the ratings. Standalone ratings reflect adequate liquidity and profitability profile. However, ratings are constrained by current sector dynamics where sizeable capacities coming online and inability to pass on increasing raw material prices has impacted financial profile of industry players. Moreover, company’s aggressive dividend payout policy which combined with sizeable debt funded expansion reflects an aggressive financial policy.

ACL currently operates two plants in Wah and Nizampur with installed cement production capacity of 2.68m tons per annum. The company has a 7% market share in terms of installed capacity in the North Zone. Capacity utilization of the plant has ranged between 71.8% and 86.4% over the last three years. In order to enhance efficiencies and reduce cost, the company is working upon installation of a 7.5MW Waste Heat Recovery (WHR) plant at Wah and upgradation of Nizampur plant through a BMR. Completion of BMR at Nizampur plant will also increase installed capacity to 2.89m tons per annum. The management is also in the process of finalizing expansion plans.

Profitability indicators, which have weakened in FY18, have remained healthy on the back of growth in dispatches over the last few years. However, gross margins, which compare less favorably to peers, have witnessed pressure during FY18. Going forward, gross margins of the company are expected to remain under pressure on account of sizeable new capacities coming online. Impact of decline in cash flows on account of lower gross margins is projected to be offset by incremental cash flows post completion of WHR at Wah plant and BMR at Nizampur plant.

The assigned ratings also incorporate the company’s higher leverage indicators vis-à-vis peers. Going forward, JCR-VIS expects leverage indicators to further increase to fund future projects. Debt servicing coverage is expected to remain adequate for repayment of existing and WHR & BMR debt. JCR-VIS will assess funding mix and financing terms once expansion plans are finalized and will revisit ratings accordingly.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Talha Iqbal (Ext: 213) at 35311861-70 (10 lines) or fax to 35311873.

Javed Callea

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-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.JCR-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.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-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 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited