AKD Securities Limited – Off the Analyst’s Desk (14 Sep 2023)

Karachi, September 14, 2023 (PPI-OT): FCCL - FY23 Analyst Briefing Key Takeaways

Fauji Cement Company Limited (FCCL) held its analyst briefing today to discuss their FY23 results and future outlook. Key highlights of the briefing are as follows:

To recall, company posted earnings of PkR3.0/sh in FY23, compared to PkR2.9/sh in SPLY. This increase in the earnings is majorly on the back of higher retention prices, which offset the impact of increased finance cost and the implementation of the supertax. The overall impact of the supertax was ~PKR2.0bn.

The substantial increase in distribution costs during the last quarter was primarily due to the reclassification of freight cost from COGS to Distribution cost.

Company's total cement production declined by 13%YoY to reach 4.91mn tons, down from 5.66mn tons in the previous year, owing to the overall drop in industry demand (?16%YoY). Likewise, utilization dropped to 65% from 88% in FY22.

Coal mix for FY23 stood at 53%/47% of Local and Afghan coal, respectively. Additionally, alternative fuel (Poultry waste, rice husk and tires) accounted for ~7-8% of the total mix which is expected to reach 10-12% in FY24.

Current pricing for Afghan coal stands at PkR48-50k/ton, while local coal prices are at PkR38-40k/ton. Furthermore, current landed cost of International coal (RB-2) stands at ~PkR52/ton.

As per management, company holds around 45-60 days of coal inventory, with the current cost of inventory averaging at ~PkR45k/ton.

On the power front, mix for FY23 was 51% self-generation and 49% from the national grid compared to 42%/58% of self-generation and grid in FY22, respectively.

Current retail cement prices are at PkR1,150/bag, with retention prices ranging from ~PkR760-780 per bag.

FCCL's ongoing expansion (2.1mn TPA in DG khan) is expected to be commissioned by 2QFY24 and total debt for the project stands at PkR20bn. Overall, out of the PkR37bn debt drawn for recent expansions, PkR12bn is subsidized debt.

Looking ahead, FCCL's management expects 5-10% annual growth in total industry dispatches.