The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Assigns Initial Entity Ratings to Flying Cement Company Limited

Rating Type Entity
(16-May-19 )
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

Flying cement operates as a market player with one manufacturing unit - having capacity of 0.72mln tpa, in North region. Currently, installation of WHR and BMR on manufacturing site is underway. The Company also announced doubling its existing capacity in FY16 but delayed it due to a number of announced capacities by majority cement players. The Company’s strategy is to enter market after all the new capacities will be absorbed. Upcoming industry wide expansions of ~ 7.0mln tpa (North Region only) commissioning by 1HFY20 and slowdown in the local demand seems a challenge. The demand needs to be up to secure companies’ margin. The company was able to maintain growth trajectory trend in revenue in last few years. Despite recent slowdown in industry, the Company’s operating profit and margins witnessed improvement YoY primarily due to measures on efficiency. The company has a competitive edge regarding freight costs as local coal is used plant’s location is near to Company’s home markets. It is vital for management to uphold business profile of the company by sustaining margins and improving volumes. The sponsor’s capital injection plan 1) PKR 200mln in FY19 2) PKR 470mln in 1QFY20 will give support to the financial risk profile. Going forward, leveraging will increase but cap is set for company, owing to planned expansion. Current coverages are adequate; principal repayment is scheduled after commencement of new line in Mar-21; cashflows are expected to be supportive at that time. Going forward, Company is focusing on efficiency side to improve its cost structure and achieve economies of scale.
The ratings are dependent on sustained profile of the company’s business and financial risk profile; strengthening of equity base is essential. Any significant deterioration in the sector’s outlook particularly continuation of slowdown in industry’s dispatches, interest rate fluctuation and delay in infrastructure projects may affect the ratings. Industry’s dynamics encompassing expected challenges of substantial decline in local demand or deterioration in cement prices will negatively affect the ratings.

About the Entity
Flying Cement Company Limited formerly known as “Zaman Cement Company Limited”, listed on PSX, started commercial production in 2005. The name was changed to “Flying Cement Company Limited” because of brand name “Flying” and its recognition in the market. Flying Cement is engaged in the manufacturing and sale of Ordinary Portland Cement. Currently, the company operates with production capacity of ~ 0.72 mln tons p.a; is one of the small players in industry, having ~ 2.8% share in North region’s cement capacity (operational). Flying Cement is majority owned by sponsor family members.

The overall structure vests with eight board members including CEO. Three directors are Flying Cement’s executives – CEO, Director Technical & Administration, Director Finance, Director Marketing – while four are non-executive directors, including two independent and one female director. The CEO, Mr. Agha Hamayun Khan, Master’s in Economics, is associated with the group from 24 years. Mr. Kamran Khan, chairman of the group is Graduate in Science, having 36 years of experience and handles Technical matters and capacity expansion of the company. Mr. Momin Qamar, Director Finance, Graduate in Business and having 36 years of experience.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.