Karachi:The rising prices of raw materials such as coal, diesel, electricity etc have grabbed the cement companies by the throat, who are trying to develop new means of production to cut as much as cost of production as they can.
According to Standard Capital Securities, however in this time of augmenting inflation good news has surfaced, for the cement companies i.e. Rs30 per kg bag increase in the selling prices of cement in the northern zone. This constitutes a 7.8% rise in prices in just one month. Newspapers are reporting retail price of Rs 415/50kg bag.
This increase in price would benefit the northern players including major players such as DG Khan Cement (DGKC) and Fauji Cement (FCCL). Standard Capital Securities covers both the companies. The revenue base would witness a jump which would also compensate for any decline in local sales or exports in the situation of a supply glut. Particularly, Standard Capital Securities expects Fauji Cement to gain high profits on the back of increasing prices. Moreover, a discussion with the FCCL management highlighted that FCCL’s production has increased manifolds along with sales booming substantially in recent times. Moreover, the new German line is fully operational thus making FCCL making one of the better players in the industry.
Standard Capital Securities expects FCCL to yield FY12EPS in the range of Re 0.7/sh with a DCF target price of Rs8/sh ‐ Rs9/sh.
|P and L a/c Rs ’000||FY09||FY10||FY11|
|Other operating expenses||(78,173)||(25,460)||(36,944)|
|Margins and ratios||FY09||FY10||FY11||FYE12|
|Source: Standard Capital Research|
Standard Capital Securities continues to maintain “BUY” for FCCL and now consider it Standard Capital Securities’ top pick in cement sector after Lucky Cement (LUCK).