PACRA Updates the Entity Ratings of Fecto Cement Limited – Rating Watch Removed

Fecto Cement Limited (FCL) has been operating in the local cement industry for over three decades, ensuring the sponsor's commitment towards the Company’s sustainability. With its single manufacturing facility, the Company is categorized amongst the small players occupying ~1.6% market share in terms of its dispatches during FY24. The overall dispatches of the local cement industry have remained under stress throughout FY24, majorly due to the economic challenges faced by the country in the form of high inflation and lower developmental activity. Despite these challenges, the cement industry in Pakistan witnessed marginal growth of ~1.6%, reaching ~45.3mln MT during the year ending June 30, 2024, compared to ~44.6mln MT last year. Although the local sale volumes declined by ~5% (FY24: ~38.2mln MT, FY23: ~40.0mln MT), the overall surge was driven by a significant rise in export dispatches of ~56%, reaching ~7.1mln MT, up from ~4.6mln MT last year. A similar trend was witnessed during 1QFY25, with the local dispatches recording a decline of ~20% (1QFY25: ~8.1mln MT, 1QFY24: ~10.1mln MT), while export dispatches grew by ~22% (1QFY25: ~2.1mln MT, 1QFY24: ~1.8mln MT). Unlike the industry’s trend, the Company reported total volumetric sales of ~0.725 million MT (FY23: ~0.642 million MT) of cement, including local and export sales, resulting in net revenues of PKR 10,908 million (FY23: 8,682 million). The Company’s growth in the volumes was backed by a rise in local dispatches by ~15.0%, whereas exports declined. However, during 1QFY25, the Company reported an overall decline of ~4% in the total dispatches resulting from a ~7.30% drop in local dispatches coupled with an increase in exports. Through efficient utilization of the plant along with cost optimization measures, the Company’s Gross Profit Margins improved to 13.1% during FY24, followed by a further improvement in 1QFY25 standing at 23.0%. Similarly, the Company’s Net Margins reported improvement as a result of a continuous drop in the policy rate during the period. The Company maintains a moderately leveraged structure with stable cash flows to support the interest cost. The use of local coal, along with generating energy through captive sources and reducing the reliance on the national grid, has provided benefits to the Company. The management is focused on efficient capacity utilization, which stood at 72% during FY24, along with reducing the input costs to maintain the margins in a challenging industry dynamic.
The assigned ratings reflect the Company's manufacturing capacity and its relative standing within the industry. The rating watch has been removed due to improvements in dispatches during FY24, which subsequently led to enhanced margins. However, the sustainability of these ratings is contingent upon the management's ability to retain its market position amidst intense competition and a continuously evolving business environment. Additionally, any significant advancements in capacity, along with further gains in market share and profitability, will be critical factors in potentially raising the ratings.

About the Entity
Fecto Cement Limited is a public limited company incorporated on February 28th, 1981. It is engaged in the production and sale of ordinary Portland cement. The Company’s manufacturing facility is situated at Sangjani village, Islamabad with an annual installed production capacity of ~1.0mln MT of cement. The CEO, Mr. Yasin Fecto has been associated with the Company for more than 30 years and holds 75% stake. The BoD comprises of three independent directors and three non-executive directors.