VIS Credit Rating Company Reaffirms ‘AA+/A-1+’ Ratings of Lucky Cement Limited

Karachi, Lucky Cement Limited (LCL) continues to hold its robust credit position as VIS Credit Rating Company Limited reaffirms its entity ratings of ‘AA+/A-1+’. These ratings indicate a high credit quality for the medium to long term and an outstanding short-term liquidity position, just a step below the risk-free short-term obligations of the Government of Pakistan. The outlook for these ratings remains ‘Stable’. The prior rating was announced on June 10, 2022.

According to VIS Credit Rating Company Limited, the reaffirmed ratings draw strength from the financial backbone of the sponsoring entity, Yunus Brother Group (YBG). YBG boasts a wide presence in numerous sectors, from Cement to Real Estate, Pharmaceuticals, and more. The ratings also consider the shift in the business risk profile of the cement industry, attributed to a decline in sales volumes. This decline is a result of reduced local market demand, which can be linked to unfavourable macroeconomic conditions. Nonetheless, the cement industry’s long-term perspective remains optimistic, especially considering Pakistan’s status as a developing country, its low per capita cement consumption, and an abundant domestic supply of limestone. The broadened investments of LCL in multiple sectors amplify its overall business risk profile. VIS anticipates that LCL’s other income will continue to be substantial, primarily driven by dividends from investments in the power sector, which has shown consistent operational outcomes. The ratings also reflect a commendable corporate governance framework, marked by a strong organizational structure, experienced management, and a staunch dedication to transparency and reporting.

LCL’s financial risk profile reveals positive revenue trends, strong margins, noteworthy cash flow coverages, and an ideal capital structure. The cash flow coverages are consistent with the benchmarks for the assigned ratings. LCL’s future strategy entails a projected capital expenditure of around Rs. 11b, dedicated to renewable power projects. This investment underscores the company’s steadfast commitment to environmental sustainability. It aims to address both Pakistan’s energy deficit and the challenges posed by climate change, while simultaneously rationalizing costs for LCL. In the event that the State Bank of Pakistan (SBP) does not reintroduce the discounted financing scheme for renewable energy, which is currently suspended, the entire capital expenditure is expected to be sourced from internal capital. With this plan in place, gearing indicators are forecasted to remain consistent throughout the rating horizon. The ratings’ sustainability hinges on LCL’s ability to preserve a sound financial position and capitalize on the diversification benefits derived from its investments.

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