Fauji Cement Company Limited to unveil results on 19Feb, what to expect? –Global Research
By: Yousuf Rahman, Global Securities Pakistan Limited
FCCL 2Q EPS expected at PKR 0.44
Fauji Cement Company Limited (FCCL) has scheduled its board meeting on Feb 19’13 to announce its financial results for 2Q FY13. We expect FCCL’s earnings to report a 63% QoQ increase to PKR 588mn (EPS: PKR 0.44) during 2Q FY13 against PKR 361mn (EPS: PKR 0.27) during 1Q FY13. As a result, the cumulative earnings for 1H FY13 is expected to total PKR 949mn (EPS: 0.71) against a loss of PKR 102 (EPS: PKR -0.08) during 1H
FY12. A substantial increase in earnings is expected primarily on the back of: 1) Capacity enhancement resulting in higher local dispatches, 2) Higher cement prices, and 3) Declining coal prices.
Top-line to climb an impressive 19% QoQ
We expect FCCL’s revenues to reach PKR 4,139mn during 2Q FY13 against PKR 3,464mn during 1Q FY13, thus representing a noteworthy 19% QoQ increase. This increase is on the back of flourishing local demand. Volumetric sales of the company improved by 22% QoQ from 0.425mn MT to 0.520mn MT. Higher cement prices will also marginally contribute to the top-line as prices, which averaged PKR 437/bag during 1Q FY13, elevated by 1% to PKR 441/bag during 2Q FY13.
Production costs towards a descent
Coal constitutes around 40% of cement’s production cost. For the past several months, international coal prices have been on a constant decline as Richard Bay coal prices have fallen from around USD 108/MT during 2Q FY12 to around USD 85/MT during 2Q FY13, representing a 27% YoY decline. In most cases, cement manufacturers hedge coal prices for months in advance; as a result, the impact of falling coal prices is expected to be felt in the subsequent quarters.
Finance cost on the rise owing to currency depreciation
We estimate FCCL’s finance cost to clock in at PKR 466mn during 2Q FY13 against PKR 386mn in the preceding quarter, registering a 20% QoQ increase. The primary reason for the surge in financial charges is Pak Rupee depreciation as inter-bank dollar rates increased from PKR 94.9/USD at the start of 2Q FY13 to PKR 97.4/USD at the end of 2Q FY13, thus representing a depreciation of 2.6% during the quarter. Due to currency depreciation, we estimate Fauji Cement Company Limited to incur PKR 168 exchange losses during the quarter. However, Pak Rupee had remained relatively stable during 1Q FY13 hence Fauji Cement Company Limited faced minimal exchange losses during that period.
Reinitiate coverage with Jun13 TP of PKR 10.5/share; BUY
We reinitiate coverage on Fauji Cement Company Limited with Jun13 Target Price of PKR 10.5/share, with a BUY stance. FCCL developed its Refuse Derived Fuel (RDF) plant to allow it to utilize low cost kilning fuel such as municipal waste. FCCL also enjoys one of the largest and most efficient plant in the industry allowing it to keep costs at a low PKR 3,600/MT.