Fecto Cement Limited (FECTC) Lower Coal Prices Spur Growth

WE Financial Services Limited.

In our today’s morning report we would discuss the performance of Fecto Cement Limited (FECTC) in 1QFY16.

Profitability puff-up

For the 1Q of running fiscal, Fecto Cement pronounces decent growth in the earnings which actualized into profit-after-taxation of Rs 182 million (EPS: Rs 3.60) compared with Rs 163 million (EPS: Rs 3.25) of 1QFY15. This earning depicts a surge of 11% and has its reasons as follows; lower coal prices, higher retention prices; and fall in financing cost. On QoQ basis, net earnings fall by 22% to Rs181 million (EPS: Rs3.60) in 4QFY16 against Rs231 million (EPS: Rs4.61) in equating quarter of last fiscal mainly due to 16% lower dispatches.

Grim volumes behind top line doldrums

Net sales in 1Q tad up 0.1% YoY to Rs1.11 billion compared with Rs1.11 billion of 1QFY15, due to slim volumetric sales. Local cement take-off rose by 13.5% to 126k tones against 111k tons in 1QFY15 due to rapid constructions in the country, but on the other hand commodity exports dried by 37% YoY to 32k tons against 52k tones of 1QFY15 because of much lower exports to Afghanistan. Overall, cement dispatches dropped by 2.5% to 159K from 163k tons in 1QFY15.

Gross profit grows 5%

Gross profit for 1QFY16, grew 5.3% to Rs371 million against the Rs353 millions of 1QFY15. This growth was on the back of higher retention prices which surged by 3% to Rs 7,012/ton against Rs 6,815/ton in 1QFY15. Gross margin in 1QFY16 ascended to 33.2% against 31.6% during 1QFY15.

Recommendation

The scrip is currently trading at a price of Rs 74.01/share offering an upside potential of 14% from our June’16 target price of 84/share.