Morning Briefing for February 20, 2014 – Standard Capital

Karachi, February 20, 2014 (PPI-OT): Fauji Cement: 1HFY14 Result Review…

FCCL posted profit after tax of Rs 1.25bn (EPS: Re 0.94) in its recently announced 1HFY14 results as compared to Rs 0.92bn (EPS: Re 0.69) in the corresponding period last year; showing a sharp uptick of 36.2% YoY along with a cash pay-out of 0.75/sh, which was in line with Standard Capital’s expectations.

According to Standard Capital, in 2QFY14, profit after tax of the company was recorded at Rs 0.669bn (EPS: Re 0.50), up by 19% YoY as against Rs 0.42bn (EPS: Re 0.42) in 2QFY13.

Net sales clocked in at Rs 8.23bn in 1HFY14 which was primarily attributable to the improved cement demand outlook and uptick in a number of Government based projects. Looking forward, dispatches are expected to improve as winter season would end and construction activities start to kick in.

Financial burden to go down…

Due to robust demand growth, per bag cement prices have risen steeply, which has somewhat mitigated the impact of cost increase. Internally generated funds have enabled the company to deleverage its hefty financial burden which would reflect positively on the company’s financial health going forward.

Sales Volumes are expected to propel…

Local sales are likely to ascend in 2HFY14 due to impressive sales growth pattern depicted by the North Zone companies in the 3rd and 4th Quarters. Though losing the Afghan market would badly hit the export sales of the company, management is exploring further markets of Africa and Sri Lanka to enhance its capacity utilization, and hence to cover up the export wedge of the Afghan market.

At current price level (Rs 15.94), FCCL is offering an attractive upside potential of 37.75% based on Standard Capital’s Jun-14 TP of Rs 22/sh. (Wait for Standard Capital’s detailed call in due course)

                       Q2FY13   Q2FY14  YoY (%)   1HFY13   1HFY14   YoY (%)

(PKR mn)

Net Sales               4,103   4,359   6.3%      7,567    8,237     8.9%

Cost of Sales           2,680   2,851   6.4%      5,131    5,460     6.4%

Gross Profit            1,423   1,508   6.0%      2,436    2,777    14.0%

Operating Expenses        155     156   0.6%        270      297     9.9%

Operating Profit (EBIT) 1,268   1,353   6.7%      2,165    2,480    14.6%

Other income                6      28 397.8%         20       80   296.7%

Finance Cost              432     321 -25.7%        818      665   -18.7%

Profit before tax (EBT)   842   1,060  25.9%      1,368    1,895    38.6%

Taxation                  280     391  39.7%        445      644    44.8%

Profit After tax (PAT)    562     669  19.0%        923    1,251    35.6%

EPS (PKR)                0.42    0.50  19.0%       0.69     0.94    36.2%