PACRA maintains Entity Ratings of Flying Cement Limited

Flying Cement Company Limited (‘the Company’ or ‘Flying Cement’) is part of the Flying group. The Company operates with one manufacturing unit having capacity of 1.2mln tons per annum (‘TPA’). The Company’s production site is in north Punjab and usually captures the locality of northern region of the country. In FY23, cement sales witnessed a substantial decline due to uncertainty in government policies and recorded high input cost. However, during the latest quarter 1QFY24, the industry volumes increased by ~24% to 11.9mln MT from 9.6mln MT during 1QFY23 on back of recovering demand and economic conditions. During 1HFY24, the Company dispatched ~164,000 tons as compared to ~162,000 tons during 1HFY23 witnessing an increase of 2%. The price per ton sold by the Company also increased by 14% and stood at PKR 19,355 (1HFY23: PKR 16,941) resulting in an increase of 15% in revenue. During 1HFY24, the revenue stood at PKR 2,368Mln (1HFY23: PKR 2,069Mln). Margins of the Company also showed a positive trend on the back of higher prices. During 1HFY24, gross margin of the Company increased to 16.4% (1HFY23: 15%). Net margins increased to 7.2% (1HFY23: 6.7%) and the Company recorded net profit of PKR 171mln as compared to PKR 139mln despite an increase of 37% in finance cost (1HFY24: PKR 112mln, 1HFY23: PKR 82mln).
The Company announced cement capacity expansion plan in FY16 which got delayed due to a number of unfavorable economic conditions. As per management, total capacity will be 11,700tpd (Clinker) after line II achieves COD which is expected in the start of FY25. However, at end Dec 23, the Company's financial risk criticality is elevated. The working capital cycle of the Company is under pressure, trade payables have seen a significant increase and current ratio of the Company has deteriorated to 0.4x. FCFO’s of the Company have increased to PKR 386mln from PKR 306mln adequately covering the finance cost but the repayment of short-term borrowing and CMLTD remains vital. However, the Company’s banks by deferring the principal repayment of the long-term debt, and repayments staring from 2QFY25, has given a breathing space to the Company albeit, the repayment of principal remains crucial. The Company’s equity base stands at PKR 12bln following a PKR 5bln equity injection and braced by PKR 4bln revaluation reserve. At end Dec-23, the leveraging of the Company stands at 35.7%. Rating watch incorporates delays in expansion projects and pressure on financial risk matrix. However, management is of view that once COD of Line II is achieved cashflows are expected to improve.
The ratings are dependent on improvement of the company’s business and financial risk profile; repayments of deferred long-term loans and strengthening of equity base is vital. Any further derivation from the envisaged financial structure (debt equity ratio, cash coverage etc.) would be considered negative.

About the Entity
Flying Cement Company Ltd, listed on PSX, started commercial production in 2005 and is engaged in the manufacturing and sale of Ordinary Portland Cement. Currently, the Company is one of the small players in industry, having 2.3% share in North region’s cement capacity (operational). The majority shareholding vests with the sponsors and their family members. The overall BOD constitutes eight board members including CEO. Three directors are Flying Cement’s executives while five are non-executive directors, including two independent and one female director. Mr. Kamran Khan, Chairman of the Group is Science Graduate have a 48 years of experience while Mr. Momin Qamar (Director Finance), Graduate in Business have a 38 years of experience. Mr. Agha Hamayun Khan, CEO is associated with the Company for last 25 years.