The Pakistan Credit Rating Agency Limited
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Maryam Arshad

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PACRA maintains Entity Ratings of Fecto Cement Limited

Rating Type Entity
(02-Apr-21 )
(22-Apr-20 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes 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 1.6% 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. The cement sector achieved tremendous growth in despatches specifically local despatches post Covid-19 pandemic economic slowdown. The revival of economic activity based upon the PSDP funded projects including the construction of dams & CPEC related civil construction projects. Cement sector's local capacity utilization also recorded growth owing to accelerated local demand and the sector is entering into new era of expansions of ~18mlntpa. Leveraging levels on industry level are expected to go up owing to expansions. The likelihood of impact is considered high where quantum is directly correlated with operational strength and supported equity base. Curtailed key policy rate is providing much-needed room to the sector. The company's capacity enhancement program is in planning stage. The company’s business profile remains critical as per new era of expansions will change the industry’s dynamics and company may lose its market share if planned expansion of 1.8mln tpa will be put on hold. Going forward, along with improvement in volumes, managing direct & indirect costs, restoring operating and EBITDA margins at earlier healthier levels remains vital for the company. Rating watch incorporates deteriorating performance of the company in the last few quarters, wherein company reported humble growth in sales for 1HFY21 but still on lower side when compared to its peer universe. 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 supporting market conditions, the delays in finalization of the project financing and other related matters will remain critical. The financial risk profile would remain a predominant determinant in the ratings of the company. Currently the quantum of debt is not high. Any aggressive leveraging would take the ratings downward. Currently, the long-term financing is used to finance BMR projects including installation of solar plant & up-gradation of Silos & cooling system on plants.
The ratings are dependent on improvement of company’s business volumes and margins. The company's improved business performance in current economic scenario – challenges on quarry leases, effective cost management & relative position - remains vital for ratings.

About the Entity
Fecto Cement, operates with 1.6% 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.