September 15, 2023 (MLN): Fauji Cement Company Limited (PSX: FCCL), a major cement exporter to Afghanistan, is poised to explore additional export opportunities with the completion of the company's Greenfield Expansion in the D.G. Khan area, the management of the company highlighted on Thursday during the corporate briefing session.
The session revealed that the Brownfield Expansion of 2.1 million tons at Nizampur was successfully completed in a record time of 18 months and within the budgeted cost despite all the economic headwinds and logistic challenges due to COVID-19.
Additionally, the Greenfield Expansion in the D.G. Khan area is progressing as per the schedule and is expected to be completed by the end of this year.
In terms of costs, DG Khan is funded with 35 billion out of 39bn with a Debt/Equity ratio of 50:50. This allocation of funds is due to its status as a Greenfield project, which requires a significant investment.
During the briefing, the management highlighted a distinctive feature that sets FCCL apart from other market players.
FCCL is actively exploring alternative sources for production, and approximately 7-9% of coal usage has already been substituted with these alternatives. It is projected that this substitution rate will increase to 10-12% by next year.
The management of FCCL in FY23 maintained its focus on implementing cost-optimization initiatives.
These include higher utilization of the local coal, an increased use of alternative fuels, and expansion of the captive solar generation capacity to 40MW.
These initiatives along with the Waste Heat Recovery power plant fulfilled almost 60% of the company's requirements for operations.
As per the management, currently company holds a coal inventory of 45-60 days at a cost of Rs45k/ton.
The procurement price for Afghan coal ranges from Rs48,000 to Rs50,000 and for local coal, it falls between Rs38,000 to Rs40,000.
While addressing the financial results for FY23, the management shared that despite a significant 16% decline in the cement demand this year, the company posted a 5% YoY growth in its profitability to stand at Rs7.44bn in FY23.
This accomplishment is noteworthy considering the retrospective increase in the Super Tax rate, which jumped from 4% to 10%, resulting in an impact of Rs1.98 billion and an effective tax rate of 39%.
Exports to Afghanistan were one of the key drivers that supported the earnings of FCCL.
FCCL currently holds a 14% market share in the cement industry with capacity utilization of 65%, which has declined compared to 88% in FY22 majorly due to the cement demand in the country.
It was further highlighted during the session that the distribution costs were categorized under the cost of sales, however, for the sake of improved presentation, it was placed under Selling and distribution expenses for FY23.
It is pertinent to note that all of FCCL’s cement plants are now equipped with solar captive power capacity.
In addition, fixed cost rationalization has also contributed to the achievement of the above results.
However, the cement dispatches witnessed a decline of 15.7% YoY in FY23 amid low GDP growth, high construction costs, and a cut in the PDSP (Public Sector Development Program).
Furthermore, the Pakistani Rupee (PKR's) massive decline from Rs227 to Rs287 against the USD exposed the company to an exchange loss of Rs960 million in finance costs. This loss was associated with the Expansion Project's financial liability.
As per the management, the outlook for FY24 appears promising, with expectations of strong demand.
Furthermore, the upcoming period from September to December holds paramount importance in shaping the demand outlook, which will subsequently impact the company's profitability for the next fiscal year (FY24).
Currently, in Pakistan, FCCL claims to hold the 3rd position, and in the North, it ranks as number 2 in the cement industry.
The session concluded with the management stating that FCCL is a dividend-paying company, however, due to cost overruns, the company has remained under financial pressure.
Going forward, with a positive demand outlook and the implementation of expansion plans, the company is on the path to growth and capturing a maximum market share.
The current MRP per cement bag of FCCL is Rs1,150. Moreover, the retention price is around Rs760-780 depending on logistics.
Copyright Mettis Link News
Posted on:2023-09-15T12:21:00+05:00
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