PACRA maintains entity ratings of Fecto Cement

March 25, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Fecto Cement Limited (PSX: FECTC) at "A-" for long term and "A2" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

FECTC has been operating in the local cement industry for over three decades, ensuring the sponsor's commitment to the company’s sustainability.

With its single manufacturing facility, the company is categorized amongst the small players occupying a 1% market share in terms of its dispatches.

Over the previous fiscal year, the local cement industry witnessed a decline of 15.7% in cumulative dispatches resulting from economic constraints that hindered developmental activity.

Furthermore, the soaring inflation in the country adversely impacted the demand.

Similarly, the Company’s total dispatches declined by 9.92% (FY23: 0.642 million MT, FY22: 0.713m MT).

Both local and export sale volumes of the company registered a decline during the period. Despite the decline in volumes, the company recorded Net Revenues of PKR 8,682mln, registering a growth of ~28% stemming from higher pricing.

However, the Gross Profit Margins declined to 4% reflecting an increase in the cost of goods manufactured that was not entirely passed on to the customer.

The capacity utilization of the plant stood at around 68% during FY23 to meet the demand. The transition into 1HFY24 proved to be fruitful for the company as it reported superior growth of 23% in dispatches as compared to the industry’s growth of 10%.

Subsequently, the reported Net Revenues also grew by 38% as compared to the same period the previous year.

Moreover, during the 1HFY24, the management was able to cut down cost through efficient capacity utilization along with a suitable coal mix. As a result, Gross Profit Margins improved to 13%.

FECTC maintains a moderately leveraged structure to support its working capital needs.

Moreover, it has an adequate cash flow position to meet its interest cost. With slight growth expected during FY24, the management is focused on optimum capacity utilization to boost profitability.

The company’s mining license was revoked back in 2015 which allowed FCL to carry out crushing activities in the area to source limestone. To cater to this risk, the company obtains the required raw materials from local vendors.

The ratings are dependent on the sustainability of the margins along with holding the market share in the local cement industry. Furthermore, positive cashflows to meet finance costs remain vital for the Company.

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