Fecto Cement Limited (PSX: FECTC) was incorporated in Pakistan as a public limited company in 1981. The company is engaged in the manufacturing and sale of Portland cement.
Pattern of Shareholding
As of June 30, 2024, FECTC has a total of 50.16 million shares outstanding which are held by 1856 shareholders. The company’s directors have the majority stake of 75.134 percent in the company followed by local individuals holding 10.10 percent shares. Banks, DFIs, NBFIs, Insurance, and Modaraba Companies collectively hold 8.35 percent of FECTC’s shares while joint stock companies hold 2.85 percent of shares. NIT & ICP account for 2.25 percent shares of FECTC. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
After two years of decline in 2019 and 2020, FECTC’s topline took an upward flight thereafter. Conversely, its bottom line continued to plunge until 2020 when FECTC posted a net loss. The company couldn’t recover from net loss even in 2021, however, the magnitude of the net loss considerably lessened. In 2022, FECTC registered net profit only to fall back into the loss pit in 2023. In 2024, FECTC posted a net profit. The company’s margins which dwindled until 2020, posted recovery in 2021 and 2022. In 2023, FECTC’s margins drastically plunged followed by a considerable improvement in 2024 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, FECTC’s topline plummeted by a marginal 3.31 percent year-on-year. This was the consequence of curtailed cement dispatches during the year which clocked in 682,612 tons, down 13.76 percent year-on-year. In 2019, the company made over 90 percent of its sales in the local market with export sales constituting only 9.7 percent of the overall sales mix. During the year, both the local and export sales volume of the company fell by 14.41 percent and 7.21 percent respectively. This was the result of lower demand on account of sluggish economic activity. Cost of sales inched up by 7 percent year-on-year in 2019 which was due to a steep rise in coal prices in the international market which was further exacerbated by Pak Rupee depreciation. Moreover, high power costs, stevedoring and transportation costs of coal, and higher prices of cement bags also drove up the overall cost of production. This culminated into a 42.15 percent year-on-year drop in gross profit in 2019 with GP margin falling from 20.95 percent in 2018 to 12.54 percent in 2019. Despite inflationary pressure, FECTC was able to cut down its administrative expenses by 1.73 percent year-on-year in 2019. This was achieved as the company incurred initial expenditure on a new manufacturing plant in the previous year which was significantly reduced in 2019. Distribution expense also posted a marginal 3.83 percent uptick in 2019 primarily due to higher sales commission and depreciation charges incurred during the year. Other income fell by a massive 58.28 percent year-on-year in 2019 as FECTC made a gain on the sale of its operating fixed assets in 2018 which it didn’t recognize in 2019. Operating profit shrank by 77.49 percent year-on-year in 2019 with OP margin sliding from 12.3 percent in 2018 to 2.86 percent in 2019. FECTC had a very skimpy debt-to-equity ratio of around 1 percent as of June 2019, hence its finance cost accounted for a mere 0.11 percent of its topline. FECTC’s finance cost grew by 64.64 percent year-on-year in 2019 due to a higher discount rate. Its bottom line witnessed a drastic 79.86 percent year-on-year slippage in 2019 to clock in at Rs.88.975 million with EPS of Rs.1.77 versus EPS of Rs.8.81 recorded in 2018. NP margin also plummeted from 9.01 percent in 2018 to 1.88 percent in 2019.
In 2020, FECTC’s topline further diminished by 26.93 percent year-on-year as cement dispatches eroded by 6.03 percent year-on-year to clock in at 641,450 tons due to lackluster construction activities and the imposition of lockdown in the latter half of the year on account of COVID-19. Geographical breakup of sales reveals that local dispatches shrank by 7.5 percent in 2020 to clock in at 571,106 tons. Conversely, export dispatches registered a 6.11 percent escalation in 2020 to stand at 70,344 tons – 10.96 percent of the total sales mix. Cost of sales ticked up by 0.8 percent year-on-year in 2020 due to Pak Rupee depreciation, high power charges, withdrawal of subsidy on industrial consumers, high transportation costs, and stevedoring charges. All these factors reversed the positive impact of a retreat of coal prices from their peak due to the global slowdown. FECTC registered a gross loss of Rs.715.44 million in 2020. Due to abridged operations on account of the reasons explained above, the company was able to trim down its administrative and distribution expenses by 16.72 percent and 53.64 percent respectively in 2020. Operating loss was recorded at Rs.1005.67 million in 2020. To add to the ado, there was a sweeping 431.39 percent year-on-year spike in finance costs in 2020. This was because of a significant escalation in the company’s short-term borrowings which primarily included running finance and export re-finance. Furthermore, the company also availed SBP Re-finance scheme for the payment of salaries and wages in 2020. This took FECTC’s debt-to-equity ratio to 4 percent in 2020. The company posted a net loss of Rs.770.071 million in 2020 with a loss per share of Rs.15.35.
Since 2021, FECTC’s net sales have begun the journey of growth. In 2021, its net sales rebounded by 43.23 percent year-on-year on account of a 13.97 percent enhancement in its dispatches which stood at 731.069 tons. Moreover, prices which remained depressed in 2020 also recoiled during 2021 on the back of the resumption of construction activities as the government initiated various stimulus packages. FECTC’s local sales volume grew by 18.43 percent year-on-year in 2021 to clock in at 676,337 tons. However, export dispatches took a 22.19 percent slide to stand at 54,732 tons in 2021. Cost of sales surged by 11.83 percent year-on-year in 2021, however, upward revision in pricing resulted in a GP margin of 5.8 percent and gross profit of Rs.287.5 million as against gross loss recorded in the previous year. Administrative and distribution expenses also eroded by 5.47 percent and 6.5 percent respectively in 2021, resulting in an operating profit of Rs.12.43 million and an OP margin of 0.25 percent. Despite monetary easing taking place during the year, FECTC’s finance cost surged by 165.34 percent year-on-year in 2021 as the company availed SBP finance scheme for renewable energy and also obtained additional running finance. Escalation in the company’s outstanding loans is also evident in a steep hike in its debt-to-equity ratio during the year (see the graph of debt-to-equity ratio & finance cost). FECTC posted a net loss of Rs.67.287 million in 2021, down 91.26 percent year-on-year. Loss per share was recorded at Rs.1.34 in 2021.
FECTC’s topline continued to grow in 2022, however, unlike in 2021; the topline growth didn’t come on the heels of improved sales volume rather it was the result of upward price revision. In 2022, FECTC’s topline mounted by 36.55 percent year-on-year despite the fact that its sales volume tumbled by 2.52 percent to clock in at 712,644 tons. While local sales volume posted a marginal 1.44 percent rise to stand at 686,077 tons, export sales volume declined by a massive 51.5 percent due to disturbance at the Afghan border and lesser demand from the Afghanistan market. Higher cement prices can also be justified by the fact that the company attained a 204 percent rise in its gross profit in 2022 with GP margin climbing up to 12.9 percent. Administrative expenses spiked by 15.40 percent year-on-year in 2022 mainly due to higher payroll expenses. Conversely, as sales volume fell, distribution expense slumped by 7.55 percent year-on-year. Scrap sales made during the year coupled with the amortization of deferred government grants drove up other income by 88 percent in 2022. As a consequence, operation profit magnified by 4597.56 percent in 2022 with OP margin flying up to 8.62 percent. Finance cost soared by 104.75 percent in 2022 due to a higher discount rate coupled with increased long-term borrowings as the company availed a temporary economic refinance facility (TERF) during the year along with a refinance scheme for payment of wages and renewable energy financing scheme. Increased borrowings produced their impact on the debt-to-equity ratio which sky-rocketed to 26 percent in 2022. Elevated finance costs coupled with increased taxation greatly diluted the bottom line growth. However, FECTC was able to record a net profit of Rs.286.703 million in 2022 with an EPS of Rs.5.72. NP margin stood at 4.23 percent in 2022.
The top line continued to grow in 2023 to the tune of 28.16 percent. Just like the previous year, the topline growth was the consequence of upward revision in the prices of cement despite the fact that cement dispatches took a 9.92 percent slide to clock in at 641,956 tons in 2023. This came on the back of a decline of 9.65 percent and 16.69 percent respectively in the local and export sales volume of the company (see the graph of cement dispatches and net revenue). Economic and political uncertainty in the country as well as devastating floods took its toll on the local demand while low demand from Afghanistan and border nuisances kept export sales in check. Cost of sales hiked by a staggering 41.84 percent in 2023 on the back of sky-rocketed prices of coal, diesel, and electricity coupled with Pak Rupee depreciation. Amid depressed demand, the company couldn’t pass on the impact of cost hike completely to its consumers which resulted in 64.24 percent erosion of gross profit in 2023 with GP margin dwindling to 3.6 percent. Administrative expenses soared by 17.37 percent year-on-year in 2023 due to higher payroll expenses and depreciation. Increased salaries and wages drove up the distribution expense by 13.73 percent year-on-year in 2023. The company sold off its operating assets at a gain in 2023 which resulted in a 187.81 percent rise in its other income in 2023. Yet, it was unable to give any impetus to its operating profit which compressed by 77.7 percent year-on-year in 2023 with OP margin marching down to 1.5 percent. Finance cost mounted by 95.32 percent year-on-year in 2023 due to enormous borrowings particularly running finance. FECTC recorded a net loss of Rs.133.245 million in 2023 with a loss per share of Rs.2.66.
In 2024, FECTC recorded 25.64 percent year-on-year growth in its topline. This came on the back of a 12.94 percent rise in the company’s sales volume which stood at 725,054 tons in 2024. Volumetric growth was driven by local sales which grew by 15 percent in 2024 to clock in at 712,769 tons. Conversely, export sales volume dipped by 44.43 percent to clock in at 12,284 tons. This was due to unattractive prices in the international market. The company significantly increased the prices to account for inflationary pressure and high energy costs. This resulted in a 357.58 percent improvement in gross profit in 2024 with GP margin climbing up to 13.11 percent. Administrative expenses surged by 11.81 percent in 2024 due to higher payroll expenses due to inflationary pressure. The company squeezed its workforce from 336 employees in 2023 to 330 employees in 2024. Distribution expense escalated by 15.74 percent in 2024 due to higher salaries & benefits of the distribution staff as well as elevated marking fees. Other income dipped by 59.49 percent in 2024 due to the high base effect as the company recorded a gain on the sale of investment property in the previous year. Other expenses plummeted by 44.44 percent in 2024 due to the high-base effect as the company recorded a loss on the sale of obsolete bags in 2023. FECTC’s operating profit improved by 717.11 percent in 2024 with OP margin tremendously rising up to 13.11 percent. Finance cost tapered off by 8.91 percent in 2024 as the company paid off a portion of its outstanding liabilities during the year. FECTC recorded a net profit of Rs.317.323 million in 2024. This translated into EPS of Rs.6.33 and NP margin of 2.91 percent.
Future Outlook
Lowering inflation, subsided discount rate and declining fuel prices in the international market will augur well for the cement companies in the long term. The government has also scheduled some core PSDP disbursements which may spur demand towards the end of FY25. However, geopolitical tensions, Indigenous political instability, high excise duties, and property taxes can have an adverse impact on the demand.
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