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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Mar-19

Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Fecto Cement Limited

Rating Type Entity
Current
(30-Mar-19 )
Previous
(18-Dec-18 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Fecto Cement has a single manufacturing capacity, located in north region. The Company’s sales are majorly driven by local market fundamental – an industry wide phenomenon. However, Fecto exported a minuscule part to India and Afghanistan - viable export markets given geographical location of the company. Industry wide exports (sizeable increase in South Region) have gone up due to muted growth in local demand. A new export window is created in Bangladesh market. Previously, cement exports were seen at its peak after financial crisis in 2008. Upcoming industry wide expansions of 11.7mln tpa (North Region only) commissioning by Sep-19 and slowdown in the growth of local demand seems a challenge. The demand needs to be up to secure companies’ margin. During 1HFY19, industry dynamics reflect weakening on account of global increase in prices of raw material (coal), depreciation of Pak Rupee, lower retention prices (especially in north region) and higher financing expenses. Lately, the coal prices showed downward trend due to cutdown of imports by China- are expected to remain range bound in medium term. The aforementioned factors have affected the company’s sales and corresponding costs; which resulted in declining margins of Fecto. The company has announced green-field expansion. The management is eying an international investment group to be partner in the project - modalities are yet to be finalized. It has taken time for the project to start. With the new market conditions and the delay in the finalization of the project financing and other related matters, it is unlikely that the project will start over the short horizon. Currently, the company is operating on deleveraged structure. Given current business profile, any acquisition of long term finance will be a rating negative factor.

The ratings are dependent on improvement of company’s business volumes and margins. The company's improved business performance in current stretched economic scenario - challenges on demand front - remains vital for ratings.

About the Entity
Fecto Cement, operates with 1.5% market share in the existing cement capacity of the country. The company is public limited company incorporated in 1981 and is engaged in manufacturing, marketing and selling of cement and clinker. Mr. Yasin Fecto, identified as the man at the last mile, owns controlling stake in the company. The overall control of the company vests in seven member board of directors (BoD), including the CEO.

The BoD comprises three independent directors, whereas Mr. Rohail Ajmal is the representative of Saudi Pak on board. Mr. Yasin Fecto, the CEO, is assisted by experienced management team.

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.