Positive news from the cement sector continues as financial results are now rolling out. Riding on robust demand and increased capacity utilisation, players in the sector have also pursued expansion plans lately.
The recently-released annual results of the Fauji Cement Company Limited (KSE: FCCL) also show improved margins, even though, until the third quarter of FY14, the companys sales volumes had witnessed a reduction of 3.5 percent year on year. Improved earnings have translated into a dividend announcement of Rs0.75 per share for the shareholders.
FCCL was able to post a decent growth of 25 percent in its bottom line for FY14, even though the increase in sales appears relatively subtle. The growth in net margins can be attributed to the decline in finance costs, which came down by 31 percent during the year.
But more importantly, the company has posted a remarkable increase in other income, which grew by 61 percent. This could be on account of the companys interests in sister organisations in the Fauji Foundation Group.
Taseer Abbas, Research Analyst at BMA Capital, notes that FCCLs earnings have benefited from the uptick in demand during the last quarter, thereby providing a cushion to subdued sales through the 9M FY14 period, as stated above. Local and export despatches in the sector increased by 12 percent and 36 percent during the last quarter of FY14 (more on latest cement despatches tomorrow).
All the same, growth in Faujis top line also resulted from the 12 percent year-on-year increase in cement prices, according to Abdul Azeem, Research Analyst at InvestCap. Further, the decline in international coal prices and rupee appreciation brought down cost of sales, thereby leading to improvement in gross margins.
Despite news of expansion in the sector, there is little likelihood that the cement cartel would dismember and give way to a price war. However, the main risks to continued growth are likely to emanate from rising political instability brewing from the Red Zone in the capital. But, do such risks apply to Fauji as well?
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FCCL - Key financials
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Rs (mn) FY14 FY13 Chg
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Net turnover 17532 15968 9.8%
Cost of sales -11448 -10887 5.2%
Gross margin 35% 32% -
Finance cost -1042 -1512 -31.1%
Other income 152 95 60.6%
Profit before taxation 4510 3086 46.2%
Profit for the year 2626 2097 25.2%
Net margin 15% 13% -
EPS - Rs 1.80 1.42 26.8%
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Source: KSE notice
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