In Focus: Result Review of Fauji Cement

FCCL has revealed notable recovery during its 1Q09. Major reasons behind growth in bottom line earnings is attributed to high exports, better margins and higher retention prices (rupees) for export sales, coupled with massive upsurge in other income during the period. In 1Q09 the company posted profit after tax of Rs220mn during 1Q09, depicting a massive growth of 249 percent YoY.
FCCL earnings derived by higher retention prices….
FCCL 1Q09 earning was driven by 11.6 percent increase in gross margins as the company has managed to sustain higher cement prices. Net retention prices increased by 65 percent YoY to (Rs228.50/bag) in 1Q09 on the back of 55 percent increase in local prices and 60 percent increase in export price in rupee term given that the Pak Rupee devalue against US$ in the last year by 30 percent. On the other hand, cost of production went up by a significantly lower amount, rising by only 35 percent YoY.
10 percent decline in dispatches reflected the weak local demand
During the 1Q09 overall cement dispatches declined by 10.8 percent, owing to the 23 percent declined in local dispatches due to worsening law and order situation in North, coupled with weak demand which affected the supply of cement in local market. While export provided some relief to the company, as export revenue registered a phenomenal growth of 43 percent on the back of shortage of cement in UAE & Afghanistan. Going forward, we expect further deterioration in company's total sale volume as local demand is likely to decline and export of the company will also start to cool down in 3Q09 as regional capacities are expected to come online in same period.
Other income surge up to Rs63mn
Other operating income of the company increased to Rs63mn from Rs11mn in corresponding period last year, which was mainly backed by substantial gain on sale of mutual fund investments.
Other Expenses, finance and distribution cost showed massive upsurge.
Other operating expenses of the company showed massive upsurge by 224.3 percent as company booked exchange losses due to the 30 percent rupee devaluation. Distribution cost of the company also showed a huge increase of 124 percent on the account of export expenses on the transportation of the cement. Financial charges of the company increase by 65 percent on the back of huge short term borrowing of Rs948mn in 1Q09.
Outlook
Going forward, 2Q09 is expected to be better than the last year quarter due to Ex-Factory price of cement are on high level of Rs370 per 50 kg bag along with the declining coal prices (US$167 per ton to US$95) are likely to raise the gross margin of the company. However, weakening in local demand couple with rising financial cost in the wage of tight monetary policy will continue to exert pressure on earnings.