KARACHI:VIS Credit Rating Company Limited has reaffirmed entity ratings of Power Cement Limited (PCL) at single A minus/A-Two.
Bank loan rating (blr) of PCL’s secured syndicated bank loan facility of Rs 16.2 billion obtained to fund Line 3 expansion of 7,700 Tonnes per day has also been reaffirmed at ‘single A (blr)). Outlook on the assigned ratings is stable. The previous rating action was announced on Nov. 09, 2020, said release on Tuesday..
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.
The 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 the fiscal year 2020-21 owing to higher retention prices and operational efficiencies of the new plant operations.