Fauji Cement Company Ltd (FCCL) has posted a NPAT of PKR1.47bn for 2QFY22 (EPS: PKR1.07), up 62% yoy and 8% qoq in 2QFY22; the result has come in higher than our expected EPS of PKR0.91. Major deviation is higher-than-expected gross margins and finance income instead of finance cost that we had assumed. The result takes 1HFY22 net profits to PKR2.82bn (EPS: PKR2.05), up 77% yoy.
Key highlights for 2QFY22 result:
Net Sales have surged 36% yoy and 20% qoq to PKR8.31bn. The sequential increase in revenues is contributed by both higher local cement prices and increase in sales volumes.
Gross margins have risen to 28.4%, up c.3.3ppt yoy but down 2.2ppt qoq, GMs are higher than our expected gross margins of 25%. The qoq decline in margins is due to massive increase in variable cost amid elevated international coal prices and inadequate increase in cement prices to pass on full cost impact.
Finance cost has turned positive during the quarter; this is due to a PKR126mn finance income booked, which took total finance cost to a positive PKR95mn against an expense of PKR13mn in 2QFY21 and our expectation of PKR21mn expense.
Among other line items: (i) FCCL has booked effective tax rate of 28% in 2QFY22 vs 27% same period last year, and (ii) admin expenses have increased to PKR218mn, up 44% yoy; this can be due to an increase in salaries and other expenses. We await detailed financials for more clarity on the latter.
Almost all cement companies in coverage, including FCCL, has beat our estimates of GMs and net profits assumption primarily due to better management of coal procurement and use of local and Afghani coal as well. But in 2QFY22, we expect that higher international coal prices without any significant change in cement prices will trim margins and profitability. However, in FY23 and onwards higher demand and normalized international coal prices should revive the sector’s and FCCL’s bottom-line, in our view. Our Buy stance on the scrip is based on a TP of PKR23/sh.