Nine months into the current fiscal, Fauji Cement Company Limited appears to be marching forward with the discipline of a military battalion. At the conclusion of the third quarter, the company's profit has increased by a whopping 64 percent when compared to the same period of the previous year.
The company's performance thus far in FY16 is impressive, even with the context of strong domestic demand that has favourably impacted the revenues of the entire industry. In the recently concluded quarter, net sales tallied 18 percent higher than 3QFY15. The reported top line depicts a six percent sequential decline; Tahir Abbas, analyst at Arif Habib Limited attributes this drop to "a 7% QoQ falloff in dispatches to 717,000 tons coupled with flat cement prices".
Despite the sequential decline, sales continue to exhibit strength while the company's gross margin also appears buttressed by a drop in cost of sales as a percentage of the top line. Resultantly, gross margin for 9MFY16 looks beefy at 48 percent when compared to 36 percent for the same period of the previous fiscal. This improvement is attributable to lower cost of fuel, savings derived from the company's waste heat recovery plant as well as substitution of grid-based power with furnace oil-based captive power generation, as highlighted by BMA Capital in a flash note following the result announcement.
Although distribution cost shows a year on year increase of 31 percent in 9MFY16, as a percentage of the top line, this cost appears to be nearly stagnant. Similarly, administrative expenses have also only grown in line with the expansion in the top line. Other operating expenses have enlarged from about two percent of the top line in 9MFY15 to nearly three percent in 9MFY16. While on the other hand, finance cost has dropped from 4.3 percent to 2.7 percent in the same period.
The company has reported earnings per share at Rs3.14 for 9MFY16. Industry players as well as analysts expect domestic demand to remain strong in months ahead while input costs are unlikely to surge any time soon given global supply gluts and slow global economic recovery.
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