Fauji Cement to become bigger player than Lucky Cement in Northregion with 10.5 million tons capacity

Karachi October, 30 2021: Fauji Cement company Limited is set to become second largest cement player in North region after amalgamation of Askari cement with and into Fauji Cement Company Limited and dual expansion of 4.1mn tons would allow Fauji CCL to become second biggest player in North region. Fauji Cement capacity would be increased to 10.5 million tons bigger than Lucky cement who is current second largest player after Bestway cement in north market. Lucky cement is also increasing cement capacity of its Pezu plant by 3.15 million tons but post expansion its capacity of 10.2 million tons will be lower than Fauji cement 10.5 million tons capacity.

Fauji Cement Company Limited in February 2021 has announced its decision to set up of a Greenfield Plant for manufacturing of 2.05 Million Ton of Cement per year at Dera Ghazi Khan that will become operational in 2.5 years and will take its cement manufacturing capacity to 5.65 Million tons of per year.
It is worth mentioning to note that the another Fauji Foundation group cement company Askari cement has also announced a 2.05 million tons Brownfield expansion at its Nizampur plant that will take its total capacity to 4.85 Million Tons per year.

Moreover, FCCL board has also discussed amalgamation of Askari Cement Limited with and into Fauji Dement and directed the management to start preparation and finalization of relevant documents and calculation of share swap ratio. After successful amalgamation and dual expansion of 2.05 million tons both companies Fauji capacity will be increased to 10.5 million tons and that will result in its market share increasing from current 6.7 percent to 13.2 percent in 2024 bigger than 12.8 percent market share of Lucky cement at that time after its 3.15 million tons expansion.

Post amalgamation of Askari cement with and into FCCL and dual expansion of 4.1mn tons (2.05mn ton each by FCCL and Askari) would allow FCCL to become second biggest player in North region.

Furthermore, company would benefit from (1) increased demand from public sector as infrastructure projects would gain momentum before election year,(2) prime beneficiary of hike in cement prices due to ~100% utilization level,(3) strong private sector demand due to construction package amid increasing inflows of RDA, (4) disbursement of subsidy under NPHP and (5) decline in coal prices says Usman Arif Research Analyst at Foundation Securities.

Fauji Cement has also the lowest debt per ton that would allow it to avail debt at lower markup rates. Company total debt stand at Rs1.1bn at the end of September 2021 and would increase to Rs20bn in FY24 due to 2.05mn Greenfield expansion with Rs32bn capital expenditure. To highlight, Fauji Cement has already secured Rs10bn TERF/LTFF facility to finance its Rs20bn debt component of the expansion.

Company is also less immune to hike in electricity tariff that Government is currently negotiating with IMF team for resumption of EFF facility. FCCL is currently relying 70% on internal power generation to meet its energy requirement.