The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Flying Cement Company Limited

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

Flying cement operates with one manufacturing unit, having capacity of 1.2mln tpa, in the North region. Lately, the Company had completed BMR which resulted in improving margins in initial quarters of FY19. Furthermore, Waste Heat Recovery plant is planned to commence in Dec-19. The Management is expecting improvement on the efficiency side. The Company announced cement capacity expansion plan in FY16 but delayed it due to a number of announced capacities by majority cement players. During FY19, industry dynamics especially for cement players operating in north region have shifted significantly on account of fluctuating cement prices, increase in FED on coal import and depreciation in Pak Rupee against other currencies. Along with these factors, muted local demand has affected the company's sales whereby volumes went down. Margins witnessed decline; largely in line with the cement players operating in north region. The financial risk matrix remained adequate; long term finance being acquired in pursuit of expansion. The comfort is taken from principle repayments arising after commencement of new line and subsequent additional cash flows. The equity base strengthened attributable to recent revaluation and equity injection by sponsors; further equity strengthening is on the cards. Going forward, leveraging is expected to increase but will remain range bound.
The ratings are dependent on sustained profile of the company’s business and financial risk profile; strengthening of equity base is essential. Any derivation from the envisaged financial structure (debt equity ratio, cash coverage etc) would be considered negative. 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 1.2mln tons p.a; is one of the small players in industry, having 2.6% 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.