Press Release

JCR-VIS reaffirms Entity and Bank Loan Ratings of Power Cement Limited

Karachi, October 02, 2018: JCR-VIS Credit Rating Company Ltd. has reaffirmed Entity ratings of Power Cement Limited (PCL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned rating is ‘Stable’. Bank loan rating (blr) of PCL’s secured bank loan facility obtained to fund Line 3 expansion of 7,700 Tonnes per day has been finalized and reaffirmed at ‘A (blr)’ (Single A (blr)). The previous rating action was announced on July 10, 2017.

The assigned rating to PCL is underpinned by financial profile and demonstrated track record of support from parent entity and sponsor family. This is also reflected in the form of significant project cost overrun and debt payment shortfall support provided for line III expansion.

Demand outlook for the sector is expected to post a stable growth on the back of ongoing and planned infrastructure projects (including dams) and demand for housing and commercial space. However, slow-down in economic growth, increase in interest rates and delay in infrastructure projects may impact projected demand growth. After witnessing significant decline during FY18, JCR-VIS expects industry margins to remain under pressure in FY19. Expansion projects of three players (Lucky Cement in Dec’2017, ACPL in Jan’2018 and DGKC in May’2018) representing around two-third of existing capacity have come online over the last 6-8 months in the South Zone. While the marketing arrangement has largely operated smoothly post expansion, JCR-VIS expects prices to become more competitive given the supply side surpluses in the mid-term.

Progress has been noted with regards to PCL’s line 3 expansion which is expected to go live in the last quarter of fiscal year FY19. Around 70% of the equipment has arrived at project site with a significant portion of the civil wok having achieved completion. Despite ongoing expansion, management has continued to focus on enhancing capacity utilization and efficiency of existing plant. Resultantly, capacity utilization increased to 73% (FY17: 54%; FY16: 57%) during 9MFY18. However, given the decline in margins primarily due to higher coal prices, profitability and funds generated from operations has depicted weakening during 9MFY18.

Going forward, a mix of cash generated from operations and borrowings will be used for funding current maturity of long-term debt and capex on existing lines. Interest during construction for expansion is already a part of the project cost while repayment of principal of debt acquired for expansion will be paid from cash flows of the new plant, starting in January 2021. Under revised assumption of coal prices and factoring in higher electricity tariff, cushion in debt servicing is projected to decline significantly unless increase in cost of production is passed on. Going forward, rating would remain dependent upon smooth continuation of marketing arrangement in the sector, timely and within cost completion of Line-3 and demand growth as projected.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Javed Callea

Applicable Criteria: Bank Loan Ratings (December 2011)
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