The Pakistan Credit Rating Agency Limited
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Abdul Wahab

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PACRA Maintains Entity Ratings of Flying Cement Company Limited

Rating Type Entity
(16-May-20 )
(15-Nov-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

Flying cement operates with one manufacturing unit, having capacity of 1.4mln tpa, in the North region. The Company had completed BMR which resulted in improved margins in FY19 but in 1HFY20, company’s bottom line turned red. Furthermore, planned Waste Heat Recovery plant is expected to add 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. Cement sector achieved second phase of expansion (18 mln tpa). However, slow local demand and expanded capacity resulted in depressed cement prices (especially in north region). Local capacity utilization already recorded dip to 65% in 1HFY20 (FY19: 68%). This will be further impacted amid COVID-19 outbreak and country wide lock down observed. Though construction sector began operations but low demand has been seen. Curtailed key policy rate will provide much needed breathing space to the sector. During 1HFY20, Flying Cement recorded losses from operations attributable to augmented supply side and depressed cement prices in north region. Hence, margins took steep dip. The financial risk matrix remained stretch as long term finance being acquired in pursuit of expansion; short term finance already present. The equity base improved attributable to recent revaluation and equity injection by sponsors. Further equity strengthening is planned and remains vital for upholding financial risk profile. Rating watch incorporates deterioration witnessed in business profile in 1HFY20 and pressure on financial risk matrix. Going forward, improved margins and cash flows remains crucial to the ratings. In cognizance thereof, sponsors have decided to inject a substantial amount in the company as equity till June 2020.
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.

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.