This was going to be a difficult fiscal year for Fauji Cement (PSX: FCCL) long before the fiscal year even kicked off. In May of 2016, the company witnessed an accident at its manufacturing facility that damaged the coal mill area of one of the company’s two production lines. This has resulted in a sobering bottom line—dropping by 55 percent in 9MFY17, though the revenues have remained more or less unaffected.
The tumbling bottom line comes from a drop in the company’s gross profits. The company has been buying clinker from other cement firms at a higher cost. Costs of goods as a result went up by 52 percent in 9MFY17, consequently, squeezing the margins to 22 percent in 9MFY17 against 47 percent in 9MFY16. Even when the second production line is operational again, the repair cost when booked will be substantial.
In contrast to Fauji which competes in the northern markets, Attock Cement (PSX: ACPL) is one of the lucky ones from the South, enjoying the fruits of its own labour as well as the promising demand that is coming about in adjoining markets. The company saw a 9 percent growth in its revenues and a 7 percent growth in its bottom line, managing to cut down the costs and improve margins to 41 percent.
Attock only has 4 percent of the market share by capacity but is undergoing an expansion of 1.2 million tons which would sustain its market share by the time many of the other cement expansions come through. The company is also spreading its wings internationally by setting up a plant in Iraq.
For Fauji, the rest of this fiscal year and the start of the next will remain financially tough. The company is installing a Waste Heat Recovery unit to go with another one which together would cater to 80 percent of the company’s electricity needs. This would cut down costs that are much needed. But until the company keeps buying clinker, its margins will continue to feel the heat. Unfortunately, in a time of booming fortunes, Fauji has been grossly unlucky.
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