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Morning Briefing for October 19, 2011 – Standard Capital


The long awaited Diamer Bhasha dam which was to bring prosperity to the cement companies, especially Fauji Cement Company (FCCL), has commenced.

According to Standard Capital, the project with a value of Rs12bn, with around 5mn tons cement requirements, is expected to increase domestic sales of the cement companies, earning them higher revenues. Standard Capital expects FCCL to be the biggest beneficiary of this project on account of its close proximity to the dam. It would increase FCCL’s local dispatches thereby increasing its total revenue to a large extent.

However, for FY12 Standard Capital does not expect FCCL to report an attractive EPS ostensibly owing to the huge amount of loans that it has taken for which interest and principal payments begin in FY12, hence declining FCCL’s net profit drastically, yielding approximately a loss per share.


P and L A/C Rs ’000  FY09  FY10 FY11 FYE12
Net sales 5,314,538 3,808,455 4,742,593 11,058,000
Cost of sales  (3,627,110) (3,292,871)  (3,919,540) (8,846,255)
GP 1,687,428 515,584 823,053 2,211,745
Distribution cost  (50,260) (47,737) (74,149) (96,568)
Administrative expenses (103,186) (103,490) (147,938) (175,897)
PBIT 1,533,982 364,357  600,966 1,939,280
Other income 190,424 27,220 28,053  32,203
Other operating expenses (78,173) (25,460) (36,944) (86,268)
Finance cost (224,716) (41,206)  (103,922)  (1,685,150)
PBT 1,421,517 324,911 488,153 200,064
Taxation  (413,894) (74,732)  (62,492)  (26,008)
PAT 1,007,623 250,179 425,661  174,056
EPS  1.43 0.31  0.52  0.18
DEPS 1.36 0.30 0.34  0.12
Source: Standard Capital Research


FCCL as evident from its increasing sales is largely benefiting from its new German cement plant whose quality is giving it an edge over other cement companies as well as helping it to compete with some strong contenders such as Lucky Cement.

However, the company is expected to yield high profits only after this burden of finance cost is reduced as the cause of the steeping EPS is solely the excessively high interest expense as a result of the following loans:


Rs ’000

Syndicate Finance 3,700,000
The Royal Bank of Scotland N.V. 7,547,961
National Bank of Pakistan 1,500,000
Faysal Bank Ltd. 500,000
Habib Bank Ltd. 384,000


On the basis of this high finance cost Standard Capital has a ‘SELL‘stance on FCCL.


According to latest news Engro Fertilizers Ltd. had filed a Writ Petition in the Sindh High Court against the curtailment of gas supplies to EnVen and has won the case, with SNGPL directed to supply the guaranteed quantity of 100MMSCFD of gas to EnVen in accordance with the contract dated April 11, 2007.

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