CEMENT TREND - FFC IS THE BEST AFTER LUCKY

The rising prices of raw materials such as coal, diesel, electricity etc have grabbed the
cement companies by the throat, who are trying to develop new means of production
to cut as much as cost of production as they can. However in this time of augmenting
inflation good news has surfaced, for the cement companies i.e. Rs30 per kg bag
increase in the selling prices of cement in the northern zone. This constitutes a 7.8%
rise in prices in just one month. Newspapers are reporting retail price of Rs 415/50kg
bag.
This increase in price would benefit the northern players including major players such
as DG Khan Cement (DGKC) and Fauji Cement (FCCL). We cover both the companies.
The revenue base would witness a jump which would also compensate for any decline
in local sales or exports in the situation of a supply glut. Particularly, we expect Fauji
Cement to gain high profits on the back of increasing prices. Moreover, a discussion
with the FCCL management highlighted that FCCL’s production has increased
manifolds along with sales booming substantially in recent times. Moreover, the new
German line is fully operational thus making FCCL making one of the better players in
the industry.
We expect FCCL to yield FY12EPS in the range of Re 0.7/sh with a DCF target price of
Rs8/sh ‐ Rs9/sh.
P&L a/c Rs '000 FY09 FY10 FY11
Sales 6,953,323 4,902,396 5,788,302
Gov. levy (1,638,785) (1,093,941) (1,045,709)
Net sales 5,314,538 3,808,455 4,742,593
COS (3,627,110) (3,292,871) (3,919,540)
GP 1,687,428 5 15,584 823,053
Distribution cost (50,260) (47,737) (74,149)
Administrative expenses (103,186) (103,490) (147,938)
PBIT 1,533,982 3 64,357 600,966
Other income 1 90,424 27,220 28,053
Other operating expenses (78,173) (25,460) (36,944)
Finance cost (224,716) (41,206) (103,922)
PBT 1,421,517 3 24,911 488,153
Taxation (413,894) (74,732) (62,492)
PAT 1,007,623 2 50,179 425,661
EPS 1.43 0.31 0.52
Margins and ratios FY09 FY10 FY11 FYE12
EBIT margin 28.9% 9.6% 12.7% 14.7%
PBT margin 26.7% 8.5% 10.3% 12.5%
PAT margin 19.0% 6.6% 9.0% 9.6%
cost/sales 68.2% 86.5% 82.6% 81.9%
Source: Standard Capital Research
We continue to maintain “BUY” for FCCL and now consider it our top pick in
cement sector after Lucky Cement (LUCK).

Urea margins growth unabated

Urea margins growth unabated


Major reason behind such increase in profitability is due to increase in average prices by +32% YoY to Rs1,037/ bag for the period under review as against Rs787/ bag in 1H10. However there was no change in feed stock gas price which improved the company’s gross margin and likely to remain 56.5% in 1H11 as against 44.3% in 1H10. Despite all this company’s production remained on lower side by (-5.5% YoY) to 1,172k tons, consequently offtake also dipped by (-4.6% YoY) to 1,174k tons.

FFC OUTLOOK

We believe 2H11 would also be a good period for FFC because urea prices one again increased to Rs1,340/ bag and will definitely have positive impact on 3Q11 earnings. Any hike in urea price by Sui network players would favor FFC but additional curtailment on Mari network or hike in feed gas price for Mari network could hamper earnings growth. At current levels the stock is trading at CY11 P/E of 6.83x and offers a dividend yield of 14.26%. We recommend Hold stance for the scrip, as we believe such high urea margins would not sustain in CY12 and onwards

Fauji Fertilizer Company Ltd. (FFC) - 2QCY11 Result Preview

Fauji Fertilizer Company Ltd. (FFC) - 2QCY11 Result Preview

Fauji Fertilizer Company Ltd. (FFC) is scheduled to announce its 2QCY11 result on July 29, 2011. We expect the company to post PAT of Rs 8,773mn (EPS: 10.34) versus PAT of Rs 5,101mn (EPS: 6.01) in corresponding period last year, an upsurge of (+72% YoY). On top of the stellar performance we expect the company may announce cash dividend of Rs5.25/ per share.