Flying Cement: Promising returns on the way

January 20, 2022 (MLN): The decision of Flying Cement’s board of directors pertaining to issue right shares of 75.98% at par in order to raise Rs3 billion has painted a rosy picture with respect to the upcoming returns.

Along with fulfilling the requirement of working capital, the said amount will shrink the current debt levels and favourably improve its capital structure by reducing leverage in an increasing interest rate environment.

It will also help the company to achieve economies of scale and pay for capital expenditure towards completion of the Line-2 plant of 7,700 TPD of clinker.  Consequentially, it will improve the company’s profitability and financial ratios which are expected to maximize shareholder return.

As far as the company’s expansions are concerned, Flying Cement’s new expansions are very economical and the estimated CAPEX would be around Rs10.3bn ($27.5 per ton) which is a key valuation trigger to the company, Deepa Jeswani, Research Analyst at Darson Securities said.

The new line is expected to start its commercial production in 1QFY23 which will take the total clinker production capacity to 11,700tpd. The low cost of the plant was possible as management acquired a second hand European based plant and as per management, they already have some inspection and quality assurance testing parts and further possess the technical expertise to move forward.

Right after this expansion, the capacity share of the company will rise to 5.7% after incorporating industry-wide additional capacity of 17.5mn tons, which will come online in FY23 onwards compared to the present share of 2.4% in the North.

The company also installed 7.5MW of WHR and 12MW coal-based CPP which will lead the company towards energy cost savings and thus reduce the reliance on a grid of around 30%- 40%. The company also efficiently managed imported coal inventory and used optimum levels of local coal around 70-80% within the mix along with biomass.

This will further serve as a hedge against inflation and give them the best cushion in the upward trend of coal prices, a report by Darson Securities noted.

The report further added that local demand is expected to remain impressive, in 6MFY22 where domestic sales dipped slightly to 4% due to light monsoon weather and also the winter season triggered slow construction activities.

Going forward, growth momentum is likely to continue backed by a robust pickup in local dispatches led by construction friendly policies. This will help FLYING to achieve a capacity utilization level of 69% in FY23, it added.

Prices will remain competitive and further retention prices are expected to increase on the back of higher local MRP coupled with lower discounts thus having an overall positive impact on the company’s bottom line.

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