Lahore, April 01, 2019 (PPI-OT): Fecto Cement has a single manufacturing capacity, located in north region. The Company’s sales are majorly driven by local market fundamental – an industry wide phenomenon. However, Fecto exported a minuscule part to India and Afghanistan – viable export markets given geographical location of the company. Industry wide exports (sizeable increase in South Region) have gone up due to muted growth in local demand. A new export window is created in Bangladesh market. Previously, cement exports were seen at its peak after financial crisis in 2008.
Upcoming industry wide expansions of 11.7mln tpa (North Region only) commissioning by Sep-19 and slowdown in the growth of local demand seems a challenge. The demand needs to be up to secure companies’ margin. During 1HFY19, industry dynamics reflect weakening on account of global increase in prices of raw material (coal), depreciation of Pak Rupee, lower retention prices (especially in north region) and higher financing expenses. Lately, the coal prices showed downward trend due to cutdown of imports by China- are expected to remain range bound in medium term. The aforementioned factors have affected the company’s sales and corresponding costs; which resulted in declining margins of Fecto. The company has announced green-field expansion.
The management is eying an international investment group to be partner in the project – modalities are yet to be finalized. It has taken time for the project to start. With the new market conditions and the delay in the finalization of the project financing and other related matters, it is unlikely that the project will start over the short horizon. Currently, the company is operating on deleveraged structure. Given current business profile, any acquisition of long term finance will be a rating negative factor.
The ratings are dependent on improvement of company’s business volumes and margins. The company’s improved business performance in current stretched economic scenario – challenges on demand front – remains vital for ratings.
For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com