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The Pakistan Credit Rating Agency Limited
Press Release

Date
22-Apr-20

Analyst
Maryam Arshad
maryam.arshad@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
(22-Apr-20 )
Previous
(27-Sep-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

Fecto Cement has a single manufacturing capacity, located in north region, with an annual cement capacity of 0.8mln tons. The company's market share stands at 1.7% in operational cement capacity. The Company’s sales are majorly driven by local market fundamental – an industry wide phenomenon. However, Fecto exported a minuscule part to Afghanistan - viable export markets given geographical location of the company. As at end-Dec19, cement sector achieved second phase of expansion (18 mln tpa). Augmented supply side along with slow local demand resulted in depressed cement prices (especially in north region) where players remained unable to pass on high manufacturing costs. Cement sector's local capacity utilization recorded dip to 65% in 1HFY20 (FY19: 68%). This will be further impacted amid COVID-19 outbreak and country wide lock down being observed. The likelihood of impact is considered high where quantum is directly correlated with tenure of lock down. Curtailed key policy rate will provide much needed breathing space to the sector. During 1HFY20, profitability and margins witnessed significant downward trend attributable to the severe competitive environment in the north region. High capacity utilization and exports to Afghanistan in times of slow local demand are some positives. Rating watch incorporates deteriorating performance of the company in the last few quarters. The company has announced green-field expansion, since some time, modalities are yet to be finalized. It has taken time for the project to start. With the new market conditions, 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 critical 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 1.7% 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.