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Fecto Cement Limited (FECTC) is part of the Fecto group that started its operations in 1952 with the trading and assembly of electrical appliances and wires. The group diversified into import, export and trading of electrical wires, cables, home appliances and automobiles and later, expanded to industrial sectors by establishing a cement plant, sugar mills, tractor plant as well as paper sack and hardboard manufacturing units. Other than Fecto Cement, Pakistan Agro Forestry, Frontier Paper Products, Fecto Telecommunication and Fecto Technologies are also part of the group.

Fecto Cement commenced production in 1990 at Sangjani, a location close to the capital and the northern markets for cement. The company's plant was built by Fuller International Inc, USA with a total project cost of over Rs 2 billion. The company has the current capacity of 780,000 tons of clinker and 819,000 tons of cement in production annually and holds about 2 percent of market share capacity wise making it one of the smaller cement players in the industry. Production however has been coming up where utilisation reached 90 percent in FY15.

At present, sons of Ghulam Mohammed Fecto who founded the group, Mohammed Yasin Fecto and Asad Fecto hold 20 percent and 17 percent of the company's shares respectively.

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Financial performance

Being one of the smaller cement players in the cement company, Fecto has struggled with both production and dispatches over the past six years but should be commended on consistent capacity utilisation and financial position that is at par with some of the other fast moving players.

Production has gone down from 0.77 million tons to 0.70 million tons between FY10 and FY15 reaching its highest production levels during this period in FY12 at 0.785 million tons. Capacity utilisation stood at 99 percent in FY10 but came down to 82 percent in FY14 and rebounded to 90 percent in FY15. This is a good sign speaking for the company's higher productivity and use of its capacity.

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Overall, dispatches have come down from 0.84 million tons in FY10 to 0.69 million tons in FY15; a drop of 18 percent. Dispatches on both the local and international front have gone down where exports came down by 39 percent from selling 0.29 million tons in FY10 to 0.176 million tons in FY15. International markets have recently become tough particularly Afghanistan-which is now getting its cement cheap from Iran-and the entire sector has been affected. Export share has come down from 34 percent in FY10 to 25 percent in FY15 in company's total dispatches.

Net revenues on the other hand have increased consistently reaching Rs 4.7 billion in FY15 against Rs 2.9billion in FY10, a growth of 65 percent. The company was incurring a loss in FY10 but resurfaced with a profit in FY11, reaching Rs 0.62 billion in FY15 in after-tax profits. Cost of goods has been seriously controlled that have sustained higher top line despite lower dispatches. Higher retention prices have also contributed to pushing margins upwards from 5 percent in FY10 to a solid 31 percent in FY15.

Snapshot of 9MFY16 and stock

In the company's nine-month accounts ending in March 2016, the company produced 0.49 million tons of clinker and 0.54 million tons of cement, which grew by 3 percent and 12 percent respectively year-on-year. Whereas, the third quarter showed even more solid performance: production for clinker went up by 31 percent (year-on-year) to 0.18 million tons and by 17 percent to 0.182 million tons of cement.

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Total dispatches in 9MFY16 grew by 8 percent reaching 0.545 million tons against 0.50 million tons in 9MFY15, while the third quarter also posted higher dispatches in FY16 compared to FY15. Export share in total dispatches however has come down from 27 percent in 9MFY15 to 22 percent in 9MFY16.

Even so, revenues have gone up by 8 percent in 9MFY16 year-on-year while margins stood at 32 percent in 9MFY16 against 27 percent in 9MFY15. Overall, nine months and quarterly results show that the company might post better dispatches at year end with a solid bottom line.

Investor confidence in the past year has persevered given the share price has outperformed both the benchmark KSE-100 and BR-cement sector index by a wide margin especially between March to June and the clear trend is upwards.

Future Outlook

The cement sector is banking on domestic demand that will see a boom in Pakistan in the next few years particularly in construction, infrastructure and real estate sectors, thanks to CPEC and greater public spending focus on roads, rail, highways etc. This outlook bodes well for a company like Fecto despite not being a market leader. Its solid margins make it competitive enough to get a piece of the large pie that is coming about.

Acceding to the need of this growing demand, much like the rest of the sector, Fecto may also be setting up a new plant in Kalar Kahar with a capacity of 950,000 tons, adding to its current 819,000 tons of capacity which would bring up its stake in the sector considerably higher. The plant cost about Rs 12 billion and will likely start operations by 2018.

With new expansion coming online and recent financials showing higher production as well as dispatches, the company will likely post even better bottom lines in the coming fiscals. A tighter leash on indirect costs and if the company invests on becoming more energy efficient through waste heat recovery plants or other means to reduce energy costs, together would go a long way in ensuring the company's future in the highly competitive cement sector.

Copyright Business Recorder, 2016

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