The company's plant is located in Jhang Bahtar, Punjab and caters to mainly the northern markets; also exporting to central and south Asian countries including India and Sri Lanka.
The company has adopted some measures to gain efficiency in energy consumption. In 2009, a Refuse Derived Fuel Processing Plant was set up that gave cheaper source of fuel as well as allowed for better disposing of municipal waste. About 200-300 tons of refuse per day is used in the plant which produces compost fertilizer as a byproduct. The company also set up a 12 MW of Waste Heat Recovery (WHR) unit and started producing electricity in 2015.
While operational and financial performance over the years has been commendable, and at par with other prominent cement manufacturers, a recent accident at the manufacturing site ended in a raw meal cement silo collapsing on coal mill at the second production line of the company. The coal mill was destroyed and operations at the plant were halted. This has been detrimental to the most recent financial standing of the company though it is still maintaining its revenues. The stock price against the benchmark also plummeted.
As of June 2016, the company's majority shares were held by Committee of Admin Fauji Foundation-nearly 36 percent of shares. Meanwhile, Fauji Fertilizer held 6.7 percent of the shares. The rest is divided within other associated companies; banks, DFIs and other as well as mutual funds. The public held about 26 percent of the company's shares.
Historical operational and financial performance The company has maintained a strong momentum over the years. Production went up from 1.1 million tons to 2.8 million tons between FY10 and FY16. The increase in FY12 was due to enhanced capacity.
Dispatches have also shown a healthy incline though largely carried by local demand recently. In FY10, exports used to be 38 percent of all sales but by FY16, the number has plummeted to only 14 percent. However, this really is an industry wise phenomenon since exports to Afghanistan have seen a steep decline due to cheap Iranian cement reaching that market. This share is seen to have declined further during the current fiscal year
In terms of revenues, the company has seen a massive boom-with net revenues going from merely Rs 3.8 billion in FY10 to Rs 20 billion by FY16. With consistently squeezing cost of goods, the company also improved its gross margins from 14 percent to 46 percent between FY10 and FY16.
With the increase in the bottom-line relative to sales revenues, the company had come into a sweet position by FY16. Net margins had reached 27 percent from 7 percent. Then it all went downhill.
Recent operations and outlook: After the accident in May that we mentioned in the start of this brief recording, it was estimated that it would take less than a year for the company to get back to its feet and could incur a cost of approximately Rs 300 million. This plant has a capacity of 7,200 tons per day
The plant has as yet remained closed with only one of the plants operating at its capacity while the company has been buying clinker from nearby companies to meet the shortfall of demand. This obviously resulted in significantly high costs to production, and the nine months' statement for FY17 reflects it prominently.
This was going to be a tough year for Fauji. As a result of buying clinker, the revenues have remained more or less unaffected but the bottom line dropped by 55 percent in 9MFY17; and margins have squeezed to 22 percent compared to 47 percent in 9MFY16.
This is a significant blow to the company's financials. If the stock price is any indicator, the company has seen a bust compared to the bulls in the sector that have been outperforming the KSE-100 index by a wide margin.
What does the future hold for Fauji? That provides sobering answer for now. Once the company stops buying clinker, and its production line is fully operational, its margins will improve but the recovery cost will be significant. That money could very well be invested toward an expansion. Until its keeps buying clinker, the margins will continue to feel the heat.
Since the race to the finish line is very much ongoing-with most cement players moving in third gear toward expanding their capacities-and the finish line is in fact not in sight, Fauji's bad luck could not have come at a worse time.
The sector is becoming highly competitive with new companies potentially entering the sector. The KP government has granted 14 mining licenses to several companies that are currently not producing cement in Pakistan. Meanwhile, about 30 million tons of capacity is being added by current players. The race will get tougher.
With no expansions plans in the works, if Fauji maintains a 7 percent share now, its share will fall to 5 percent or lower over the next couple of years, its spot taken over by companies like Cherat, Gharibwal, Kohat, Mapleleaf and Pioneer. Couple that with the fall in the bottom line over this fiscal year; the future for Fauji is sobering.
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Pattern of Shareholding for the year ending June 2016
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Shares %
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Associated Companies 674,900,242.0 48.90%
Committee of Admin Fauji Foundation 494,951,055.0 35.87%
Fauji Foundation 48,699,187.0 3.50%
Fauji Fertilizer Bin Qasim 18,750,000.0 1.35%
Fauji Oil terminal 18,750,000.0 1.35%
Fauji Fertilizer 93,750,000.0 6.79%
Banks, DFIs, Non DFI 51,153,000.0 3.70%
Insurance companies 60,153,916.0 4.35%
Modrabas and mutual funds 66,538,012.0 4.82%
General public 358,584,036.0 25.98%
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Source: Company Accounts
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FAUJI CEMENT IN 9MFY17
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Rs (mn) 9MFY17 9MFY16 YoY
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Sales 15,759.79 15,195.38 4%
Cost of Sales 12,297.64 8,115.52 52%
Gross Profit 3,462.15 7,079.86 -51%
Administrative & selling expense 243.41 228.41 7%
Distribution costs 120.48 142.77 -16%
Other operating expenses 208.53 446.80 -53%
Finance cost 159.92 414.57 -61%
Other income 97.75 213.88 -54%
Profit before tax 2,827.56 6,061.21 -53%
Taxation 855.55 1,723.97 -50%
Net profit for the period 1,972.02 4,337.24 -55%
Capacity (mn tons) 3.27 (7%)
Earnings per share (Rs) 1.43 3.14 -54%
GP margin 22% 47%
NP margin 13% 29%
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Copyright Business Recorder, 2017