The Pakistan Credit Rating Agency Limited
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Hashim Yazdani

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PACRA Upgrades Entity Ratings of Fauji Cement Company Limited

Rating Type Entity
(15-Mar-23 )
(15-Mar-22 )
Action Upgrade Initial
Long Term AA- A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Fauji Cement Company Limited (FCCL) ratings upgrade are derived from its association with Fauji Foundation along with its improved market position, financial and operational performance, cost optimization measures and synergies attained from merger of Askari Cement Limited with and into FCCL in July 2021. The cement industry capacity utilization in FY22 remained at 76%, with a slight decrease of 8% in the overall cement dispatches (FY22: 52.9mln MT, FY21: 57.4mln MT). The drop in dispatches is mainly attributable to cement exports. Similar declining trend was witnessed at the start of FY23, owing to various challenges including the aftermaths of floods, rising interest rates, high inflation, increase in commodity prices and cuts in overall development spending by the government. This led to an overall decline in industry volumes by 21% to 21.8mln MT in 1HFY23 as compared to 27.5mln MT in 1HFY22. Going forward, the demand is expected to rebound as the impact of flooding is receded and dispatch to large projects mainly hydropower dams picked up. FCCL operates three manufacturing facilities with a production capacity of approx. 8.4mln MTPA. Currently, the Company occupies 12% market share in terms of dispatches, making it the third largest cement manufacturer in the country. The management expects to maintain its industry ranking in future. As a result of successful merger, during FY22 the Company reported cumulative dispatches of 5.6mln MT (FY21: 3.5mln MT). Alternatively, during 1HFY23 the Company sold 2.5mln MT of cement, registering a decline of 15% YoY. Amid declining industry performance, Revenues for 1HFY23 were recorded at PKR 33,673mln (1HFY22: PKR 25,346mln). The increase in revenues during the period was backed by price hikes to reflect the increase in input prices especially fuel and power. Likewise, reported Net Income exhibited an upward trajectory as a result of synergies through the merger and cost optimization measures implemented by the management. FCCL’s margins have shown significant improvement and are aligned to its peers in the large cement manufacturers. Furthermore, the Company is working towards establishing its Greenfield expansion project of 6,825 TPD cement, near DG Khan which is expected to become operational by Dec’23. The Company has successfully procured significant portion of the machinery which is on the site. Upon completion of the project, the Company will have access to the southern region of Punjab, Balochistan and some parts of Sindh which would further complement its market presence. The Company keeps a moderately leveraged financial profile, with potential increase due to expansion but is expected to remain under 40% of its Equity.
The ratings remain dependent on upholding company's market position along with sustenance of business volumes, margins and achieving optimal utilization of production capacities. Going forward, sustainability in profits for timely repayment of debt remains vital.

About the Entity
Fauji Cement Company Limited is a public listed company established in 1992. The Company has been set up with the primary objective of manufacturing, selling and exporting of different types of cement products. Fauji Cement is majority owned by sponsor Fauji Foundation and other group companies (67%) while remaining shareholding comprises of general public (17%) and financial institutions (16%). The overall control of the company vests in eight member’s board of directors - including the CEO – Mr. Qamar Haris Manzoor, who possesses over three decades of experience in plant and project management. He is supported by a team of experienced professionals.

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.