KARACHI, April 24: At this hour last year, the share in Fauji Cement Company Limited was trading at an abysmally low price of Rs3.50. The stock has since risen 341 per cent to be quoted at Rs15.45 by Friday last.
The share has distinctly outperformed the market, which has seen year-on-year rise of 91 per cent. But that simply is not the success story of Fauji Cement alone. The sector as a whole has performed remarkably well, due to improved fundamentals and more importantly due to the hand of God.
For the last many years, cement companies had been down in the dumps. Reasons were countless: excess capacity, low demand, high fuel costs and high taxation. But it is impossible to predict the market. Who for instance could have thought that destruction of Afghanistan and an unpredictable boom in the construction industry at home would find cement companies struggling to meet demand. Whatever be the reasons, cement companies have emerged from the depth of despair.
In the protracted bullish fervour at the stock market, cement shares have been the investors' delight. All but seven of the 23 listed cement shares were languishing at varying discounts to their par value in April last year. By Friday last, more than 17 had climbed to command astoundingly high premiums. And these included at least three companies, which have yet to begin production.
Fauji Cement Company Limited released its nine-months (July-March 2004) financial figures on Tuesday, posting pretax profit amounting to Rs172 million. Last year for the same period, the company had booked loss of Rs477 million.
In fact, for all the six years since 1998, Fauji Cement had incurred losses, so that the accumulated deficit on the company books ran up as high as Rs1,770 million. The year 2004 marks its return to profitability. The recurring losses had wiped out the paid-up capital. The company's sponsor Fauji Foundation has 52 per cent stake in the company. In order to tide over some of the liquidity problems, in the financial year 1992 Fauji Cement issued 48.7 million preference shares at a discount of Rs3.85 on the par value of Rs10. All of those shares are held by the parent. The preference shares carry cumulative dividend starting 2007 and those shares are convertible to common shares at any time.
Having production capacity of 945,000 tons per annum, Fauji cement is located in the Northern zone (district Attock). The company started commercial production in 1993. It sought listing at the stock exchanges in 1996. As luck would have it, the company's entry into the market coincided with the beginning of the slump in the cement industry and therefore its stock price. Shareholders have naturally received no dividend in the last so many years. But hope is in the air.
For the nine-months (July-March 2003-04) the company showed 43 per cent growth in net sales to Rs1,612 million, from Rs1,124 million in the corresponding period of the previous year. Gross profit climbed 328 per cent to Rs502 million, from Rs117 million and the gross margin improved to 31 per cent from 10 per cent. Operating profit for the three-quarters of the current year stood at Rs470 million, which was five times the operating profit of Rs87 million earned in the same period last year with operating margins up to 29 per cent, from 8 per cent. The company could save Rs233 million or 55 per cent on financial charges, which stood reduced to Rs194 million, from Rs427 million in nine months of 2003.
Pretax profit for the three-quarters under review amounted to Rs172 million, which replaced the loss of Rs477 million in the corresponding period of 2003. Since the company has available tax losses, it was able to offset a huge sum of Rs710 million in the period under review. Since that is an accounting adjustment, the performance of the company had best be evaluated on the pretax profit basis.
Within the financial constraints, the company was moving in step with the industry's strategy to switch over from high cost furnace oil to low cost coal as fuel for production. Complete switch over was expected by June this year.
