KARACHI: Fauji Cement Company Limited (FCCL) reported an increase of 31% in its earnings, posting a profit of Rs3.43 billion in fiscal year 2018, compared with Rs2.61 billion in the previous year.
Accordingly, Fauji Cement’s earnings per share (EPS) increased from Rs1.89 to Rs2.49. The company also announced a cash dividend of Re1, taking total payout for the year to Rs2.
According to AKD Securities research analyst Waqas Imdad, the reason behind Fauji Cement’s yearly profit hike is a jump in the gross margin from 22.1% to 24.2%, owing to the commencement of clinker production from Line-II.
Another reason was the lower effective tax rate of 16% in financial year 2018 against 34% in the previous year, when the company recorded a one-time deferred tax adjustment of Rs196 million in the fourth quarter.
Meanwhile, the company posted an EPS of Rs0.95 in the fourth quarter of the fiscal year 2018, which showed a significant 104% improvement on a quarter-on-quarter basis. Profit for the quarter ended June 30 was higher than market expectations.
“The result is well above our expectations mainly due to tax reversals of Rs196 million in the fourth quarter as against expected tax expense of Rs540 million, suggesting the company might have booked tax credits to the tune of Rs740 million,” said a Taurus Securities research report.
According to Taurus Securities, FCCL might have benefitted from tax credits due under Section 65B of the Income Tax Ordinance, 2001 on account of reorganisation of its Line-II, post silo incident, and on the installation of the waste heat recovery (WHR) power plant.
In May 2016, Fauji Cement’s ‘raw meal silo’ collapsed causing damage and suspension in company’s operations of production Line-II. It was a structure around the height of a four-storey high building, which stored 25,000 tons of raw material.
Overall, the cement industry dispatches increased during fiscal year 2018. According to All Pakistan Cement Manufacturers Association’s (APCMA) recent statistics, cement dispatches increased by 14% on year-on-year basis to 45.9 million tons.
Fauji Cement’s share price increased 1.54% on Monday, closing at Rs26.26 with over 10 million shares changing hands.
Published in The Express Tribune, August 28th, 2018.