Earnings Report /
Pakistan

Fauji Cement: Q3 FY 20 review: Lower domestic sales erode profitability

  • FCCL posted Q3 FY 20 NLAT of PKR210mn (LPS: PKR0.15), first net loss since Q2 FY 12

  • Net sales decreased by 25% yoy to PKR3.9bn due to lower local sales (-28% yoy); retention prices up by 2% yoy

  • Maintain our Neutral recommendation with June 2020 TP of PKR17/sh

Intermarket Securities
20 April 2020

Fauji Cement Company Ltd (FCCL) posted 3QFY20 NLAT of PKR210mn (LPS: PKR0.15), as compared to our estimate of PKR364mn (LPS: PKR0.26). This is the first quarterly loss by the company since 2QFY12, this narrowed 9MFY20 profitability to PKR272mn (EPS PKR0.20), down 89%yoy. The complete erosion of profits yoy is mainly due to (i) lower domestic sales, (ii) higher energy tariffs, and (iii) increased transportation cost.

Key highlights:

  • Net sales decreased by 25% yoy to PKR3.9bn on account of decrease in local sales by 28% yoy and 20%qoq. However, retention prices increased by 2% yoy.
  • GMs descended to -3% in 3Q, down by a whopping 24ppt yoy (from 21% in 3Q FY 19). This is attributable to (i) lower local offtake and thus higher overheads per unit (failure to increase market share in a highly competitive environment) owing to pricing rift among the North producers, (ii) higher energy tariffs, and (iii) increased transportation costs (axel load).
  • Other line items include: (i) a tax reversal of PKR70mn, which eased off losses a little, whereas in 3Q FY 19 ETR was 30%, (ii) finance cost of PKR70mn, up by 3.2x yoy, owing to higher short-term debt and interest rates.

Though FCCL’s breakeven price level (owing to lower debt burden) is among the lowest in our universe, we believe declining market share in the backdrop of existing and new expansions will continue to negatively affect domestic sales. Hence, we maintain our Neutral stance on the scrip with June 2020 TP of PKR17/sh.