SC SECURITIES (PVT) LTD.

Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.
Corporate Office: 706, 7th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi. Tel:111-111-721 Stock Exchange Office: 441, 4th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Email: research@scsecurities.net

FAUJI CEMENT COMPANY LIMITED
Introduction Fauji Cement Company Limited is a public limited company incorporated in Pakistan under the Companies Ordinance 1984 and it started business in 1993. The shares of the company are quoted on the Karachi, Islamabad and Lahore stock exchanges. The principal activity of the company is manufacturing and sale of ordinary Portland cement. Fauji Foundation holds 50% of its shares as a major sponsor of the company. Cement industry in Pakistan has shown excellent recovery in the year 2003-04. Even though the capacity is still under utilized the overall industry wise cement sales have increased by 19.5 percent compared to last year. In the backdrop of this industrial rebound FCCL has shown comparatively strong growth 29.5 percent higher than last year. Market share has increased from 7.06 percent to 7.45 percent and the export share has gone up by 4.06 percent. During the year 2003-04 the capacity utilization of FCCL increased by 20 percent to 88 percent. It is expected that the demand of cement will grow by 10 percent per annum for the next three years. As a result most of the cement plants have been encouraged to undertake expansion. FCCL has also undertaken capacity enhancement and cement production increased by 28.45 percent over the year 2002-03. The average cost of production fell by 10.05 percent in 2003-04. The profit and loss account for the year ended June 30. 2004 showed the net profit after tax of Rs. 314.148 million as compared to last year’s loss of Rs, 531.381 million. The average cost of sales per ton of cement had decreased to Rs. 1,868 as compared to Rs. 2,077 last year due to better capacity utilization of 88 percent as compared to 68 percent

Market overview

Performance review

last year. It was also because of partial use of gas/coal and some other cost cutting measures. Consequently there was an increase in gross profit margin from 12 percent of last year. Financial charges during the year ended 30 June 2004 decreased to Rs. 204 million as compared to Rs. 463 million last year as a result of rescheduling of refinanced local loans at lower interest rate, and settlement of certain local loans at softer terms. New year The trend of higher demand and price retention which started in 2003 2004 have continued in the first second and third quarter of 2004 2005. Capacity utilization remains around 88% but the average cost of production has been increasing to 1900 per ton and then to 2100 per ton because of increased coal prices. To counter this, the company has commissioned the gas burner for the precalciner thus enabling the company to operate entirely on any of the three fuels namely furnace oil gas and coal. This is to guard against the non-availability of coal and maintain flexibility in the face of rising coal prices. Financing costs decreased in the first and the second quarter as a result of refinancing loans at lower mark up rates however in the last quarter January to March 2005 the financial charges increased to Rs 45.990 due to one time reversals in 2004 as a result of prepayment of local currency loans at favorable terms to the company. During the quarter cash in hand decreased to almost half of the amount of the same quarter last year due to financing and investing activities.

Future outlook and recommendations

Industry wise cement sales have increased and the demand for cement is expected to grow at the same rate fro the next three years. FCCL has been quick to take advantage of the external opportunities and has grasped considerable export and market share by simultaneously increasing capacity utilization. At current price of Rs 14, FCCL is trading at a PE of 10.5 that is in line with the market PE multiple, therefore we will recommend a HOLD strategy for the short-term.