Fauji Cement Company Ltd (FCCL) has posted NPAT of PKR2.3bn for 1QFY23 (EPS: PKR0.94), up 70% YoY but down 24% QoQ. The result came in much higher than our estimated NPAT of PKR1.7bn (EPS: PKR0.68), majorly due to higher than expected GMs of 28.7%

Key observations

• Net sales have increased 112% YoY (down 53% QoQ) to PKR14.7bn in 1QFY23. The sequential decline in QoQ revenue is majorly due to the booking of Askari Cement’s full year sales in the last quarter, post amalgamation.
• Gross margins have clocked in at 28.7%, up 3.2ppt QoQ (down 1.8ppt YoY),  higher than our estimated GM of 25%. Higher coal inventory at lower prices, coupled with better inventory management, led to higher margins. In 1QFY23, most cement companies have so far posted higher-than-expected gross margins amidst efficient procurement of local and Aghanistan coal.
• Finance cost has increased to PKR240mn, up from a net income of PKR77mn in 1QFY22. The increase is majorly due to higher borrowings of Askari Cement, coupled with higher interest rates.
• Among other line items: i) FCCL has booked effective tax rate of 30% in 1QFY23 vs 27% in the same period last year, due to super tax implications, and ii) admin expenses have increased to PKR319mn, up 113% YoY.

FCCL, has registered decent margins and profitability post amalgamation of Askari Cement. Going forward, we believe that better synergies, coupled with new expansion of Askari Cement will not only increase the market share, but also elevate the overall profitability of the company. We presently have a Buy stance on the scrip with a TP of PKR19/sh. We will look to revise our Target Price after incorporating the recent acquisition of Askari Cement.

Courtesy – IMS Research