S&P: Cementos Progreso S. A. 'BB' Ratings Affirmed, Outlook Remains Stable
The ratings continue to reflect CemPro's leading and stable market share of about 83% in Guatemala's cement industry, and strong brand recognition and pricing power. The company's large distribution network through its franchise ConstruRed, which consists of independent distributors with more than 379 sales points, allows for broad domestic market coverage. Moreover, the company's vertical integration and cost-efficient operations—stemming from its low-cost raw materials because of pozzolan's abundant availability—result in above-average profitability compared with those of its global rated industry peers. Guatemala's geological characteristics, such as vast pozzolan reserves, significantly limit the company's clinker needs, reduce its production costs, and accelerate the cement-making process, which continues to be one of the key rating strengths.
However, we believe that these strengths are tempered by the company's concentration in Guatemala, which has a high country risk score and limits CemPro's capacity to increase its scale of operations compared with other global industry peers.
We expect demand for cement in Guatemala to continue growing at a moderate pace for the next two years, mostly due to home construction (both self-construction and housing projects), and to a lower extent, infrastructure and commercial development projects. CemPro benefits from an installed cement and clinker capacity of about 3.1 million and 2.6 million metric tons per year, respectively. In addition, the San Gabriel cement plant has been under construction since 2013. The new plant will increase the company's installed capacity to about 5 million tons per year, and its output will partly substitute for that of CemPro's old plant. In our view, the new cement plant will provide the company with additional operating efficiencies given that it will reduce less efficient production lines and energy costs, increasing EBITDA margins to about 44% in 2018. CemPro's spending on the San Gabriel plant is more than 70% complete, and we expect the new facility to start operating by the end of 2017.
We expect CemPro's credit metrics to remain in line with our significant financial risk profile assessment, despite the high expected capex in the next two years.