Fauji's fortune, down

Expectedly, Fauji Cements s bottomline dropped by 53 percent in 1HFY17 clocking at Rs1.3 billion against Rs2.78 billion this period last year. Meanwhile, the companys revenues rose by 2 percent between these time periodsgoing from Rs9.95 billion in 1HFY16 to Rs10.2 billion in 1HFY17.

The good news is that the company announced end of last year that it will set up a waste heat recovery (WHR) unit of 7.6MW of capacity and is expected to be operational soon. Together with the WHR installed in 2015, the added capacity would cater to nearly 80 percent of the companys electricity demand. This could bolster margins in the future.

The bad news is that the company is not functioning at maximum capacity. In May of 2016, the company suffered massive losses when its raw meal silo structure containing about 25,000 tons of raw material collapsed damaging the coal mill area of its second production line. This suspended companys operations on the second line. This line produced 7,200 tons per day of cement (approximately 2.1 million tons per annum). At the time, this was the only line that was operational since the first production line of 3,700 tons per day was under planned maintenance.

It was estimated that it would take less than a year for the company to get back to its feet and could incur a cost of approximately Rs300 million. While it is unclear whether the repair cost has been booked by the company, the dent to the bottom line was brought on by a drop in gross profits while the revenues have remained more or less unaffected.

The company has been buying clinker from other cement companies and it is likely the company will continue to do that until the last quarter of this fiscal year which is the expected time by which the second line will be operational again. Costs of goods as a result went up by 46 percent in 1HFY17, and consequently, margins squeezed to the levels of FY11 and FY12 at 23 percent in 1HFY17 (22 percent in Q2) against 46 percent in 1HFY16. While the rest of the cement industry is enjoying its golden period, unfortunately this could be a tough year for Fauji.