June 29, 2020 (PPI-OT)

Following is the text of press release issued by The Pakistan Credit Rating Agency Limited (PACRA)

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The ratings reflects the squeeze in the financial profile of the company. This emanates from the rise in the leveraging scale, as a result of the expansion related debt, which was exacerbated by the cost overrun. Company obtained a loan, after the syndicate, to fund the gaps. The planned COD was delayed, not yet announced.

The management has represented that Pre-COD production is coming and COD would be achieved soon. Also, 12MW WHRPP and 24MW coal power plant are part of this project; currently facing delay where performance guarantee tests are done. Delay was seen due to restricted travelling of plant supplier's team for finalization of related modalities. After CoD of these projects, the company expects sizable savings in operational expenses in FY21 and on wards.

In the absence of any fresh equity injection into the company, the coverages have been dampened. Furthermore, significant decline in sales has been observed along with Company's margins. During 9MFY20 Pioneer Cement recorded Gross Loss of PKR 58mln followed by Net Loss of PKR 523mln. The management represented volumetric sales recorded good growth in March and April-20; same growth trend expected in future. Slashed key policy rate will provide notable savings in finance costs which along with improved FCFO will enhance coverage.

The Company's sales are majorly driven by local market fundamental - trend followed by all cement players in north region. However, slow local demand and expanded capacity resulted in depressed cement prices (especially in north region). Local capacity utilization already recorded dip to 65% in 1HFY20 (FY19: 68%). This will be further impacted amid COVID-19 outbreak and country wide lock down observed.

Though construction sector began operations but low demand has been seen. Curtailed key policy rate will provide much needed breathing space to the sector. The Company's business performance in muted; local demand remains vital with focus on sustaining margins. Optimal capacity utilization and adequate channelling of volumes from upcoming new line are necessary to support financial risk profile.

The revision in ratings captures the strains in the financial profile. It is important to (i) improve equity base in line with the enhanced leveraging, ii) cash flows generation iii) margins, and (ii) optimal utilization of existing and upcoming line. Timely repayment of mark up and principal is essential for the ratings. The company's business performance in current stretched economic scenario - challenges on demand front - remained vital.

For more information, contact:AnalystThe Pakistan Credit Rating Agency Limited (PACRA)Awami Complex, FB1, Usman Block New Garden Town,Lahore - PakistanTel: +9242 586 9504 -6Fax: +9242 583 0425Email: hammad.rashid@pacra.comWeb: www.pacra.com

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© Pakistan Press International, source Asianet-Pakistan