Fauji Cement Company Ltd. (FCCL) announced result for 2QFY22 where company posted an EPS of PkR1.07, up 63% on YoY basis while on QoQ basis it increased by 8%. For 1HFY22, PAT stood at PkR2.8bn (EPS: PkR2.05), up 77%YoY. The result was significantly above our expectations.

· Management attributed the decline in profitability on unconsolidated basis to lower dividend from Hub xx Gross margins of the company clocked in at 28.4% for 2QFY22, declining by 2.0ppts on sequential basis as increasing coal prices become a drag. On YoY basis, margins increased by 3.3ppts. For 1HFY22, gross margins stood at 29.3%, increasing by 5.9ppts on YoY basis.

· The deviation mainly occurred due to lower than expected cost of sales where we believe company opted for a higher share of Afghan coal.

· Topline for 2QFY22 stood at PkR8.3bn, up 36/20% YoY/QoQ as dual impact of increasing prices and dispatches take effect though on sequential basis, topline increase is mainly due to increase in prices as manufacturers passed on the increase in coal prices.

· Even though recent increase in coal prices can remain a drag on margins and profitability in near term, we maintain our Buy stance on the stock where expected decline in coal prices post 1QCY22 is expected to be a major trigger while local demand and prices remain strong. We have a TP of PkR26.8/sh for the company.

Courtesy – AKD Research