FCCL: Higher margins and finance income lift EPS to Rs2.05/sh

February 21, 2022 (MLN): Following a similar path to its peers, Fauji Cement Company Limited (FCCL) has posted a 77% YoY increase in its half-yearly profits to Rs2.8bn compared to the profits of Rs1.6 billion in the corresponding period last year.

This has caused the company’s earnings per share to clock in at Rs2.05 against Rs1.16 in IHFY21.

The substantial rise in the company’s profitability can be attributed to higher gross margins and a 7.6 YoY increase in finance income.

Going by the financial statement of the company, despite higher coal prices and a slight decline in volumes (down 3%YoY) during 1HFY22, the topline of the company surged by 31% YoY to stand at Rs15.2bn, mainly due to higher cement prices as manufacturers passed on the increase in coal price.

Cost of production also increased by 21% YoY amid higher coal and oil prices against an inadequate increase in cement prices to fully pass on the cost pressure. However, the gross margins of the company remained elevated at 23% compared to 22% last year, supported by higher local dispatches and retention prices.

Operating costs declined by 15%YoY on the back of 57% lower admin expenses.

During 1HFY22, the finance cost of the company turned positive; mainly due to Rs230.5mn finance income booked, which took total finance cost to a positive Rs172.5mn against an expense of Rs22.9mn in 1HFY21.

On the taxation front, the company’s effective tax rate clocked in at 28% during 1HFY22, as compared to 27% booked in the same period last year.

According to the report by Intermarket Securities, almost all cement players including FCCL have posted robust growth in gross margins and net profits primarily due to better management of coal procurement and the use of local and Afghani coal as well. However, higher international coal prices without any significant change in cement prices will trim margins and profitability of the cement sector in 2HFY22.

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