Lahore, March 28, 2022 (PPI-OT):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 fundamentals – an industry wide phenomenon. However, Fecto also exports a minuscule part to Afghanistan – viable export market given geographical location of the company. The Cement sector’s dispatches have recorded splendid growth and surged by 21% in FY21 as demand in the domestic market accelerated. Cement sector’s local capacity utilization also recorded growth owing to accelerated local demand and the sector has entered into new era of expansions of ~18mlntpa. Leveraging levels on industry level are expected to go up owing to expansions.

The company has reported growth in its profitability in 1HFY22 and has obtained exploration license for mining in Khushab but its capacity enhancement program is at a very preliminary stage. The company’s business profile remains critical as new era of expansions will change the industry’s dynamics and company may lose its market share if expansion is put on hold. Going forward, along with improvement in volumes, managing direct and indirect costs, sustaining improved operating and EBITDA margins remains vital for the company.

Rating watch incorporates lease expiry of quarries and no formal announcement of greenfield expansion as yet the finalization for which including project financing and other related matters 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 and up-gradation of Silos and 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, capacity expansion, effective cost management and relative position, – remain vital for ratings.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
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Lahore, Pakistan
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