April 22, 2020 (PPI-OT)

Following is the text of press release issued by The Pakistan Credit Rating Agency Limited (PACRA)

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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 1.7% 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. As at end-Dec19, cement sector achieved second phase of expansion (18 mln tpa). Augmented supply side along with slow local demand resulted in depressed cement prices (especially in north region) where players remained unable to pass on high manufacturing costs. Cement sector's local capacity utilization recorded dip to 65% in 1HFY20 (FY19: 68%).

This will be further impacted amid COVID-19 outbreak and country wide lock down being observed. The likelihood of impact is considered high where quantum is directly correlated with tenure of lock down. Curtailed key policy rate will provide much needed breathing space to the sector. During 1HFY20, profitability and margins witnessed significant downward trend attributable to the severe competitive environment in the north region. High capacity utilization and exports to Afghanistan in times of slow local demand are some positives.

Rating watch incorporates deteriorating performance of the company in the last few quarters. 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 new market conditions, 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 critical 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:AnalystThe Pakistan Credit Rating Agency Limited (PACRA)Awami Complex, FB1, Usman Block New Garden Town,Lahore - PakistanTel: +9242 586 9504 -6Fax: +9242 583 0425Email: hammad.rashid@pacra.comWeb: www.pacra.com

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