Fauji Cement’s production line-II expected to be re-operational from Oct

KARACHI: Second production plant of Fauji Cement Company Limited (FCCL) is expected to restore its operation from October this year, easing pressure on its revenue weighed down by cost of clinker procurement, a brokerage reported on Tuesday. 

Fauji Cement’s major production unit, located in Punjab, came to a sudden halt in May 2016 after an accidental collapse of silo, rendering the clinker production of 7,200 tonnes per day (2.2 million tonnes per annum) non-operational.

The accident also affected the company’s line-1 that has an estimated capacity of 945,000 tonnes per annum. “Fauji Cement’s line-II… is expected to re-commence operation from October 2017 as opposed to market expectation of some delay,” Topline Research said in a report. “Most of the civil works have been completed and the company is all set to begin trial run after Eid next month.”

Last year, the cement maker, in a filing with the stock exchange, said rehabilitation of production line-2 was to complete by August then.   The collapse of silo, containing 25,000 tonnes of raw materials, affected the cost of production as the company started procuring clinker from the market.

It purchased Rs7.3 billion worth of clinker during the nine-month period of the last fiscal year in order to retain its market share. FCCL, however, recognised insurance claim amounting to Rs979 million in June 2016. The company received Rs700 million on account of insurance claims during 9MFY2017.

The cement maker holds around seven percent share in the market of 37 million tonnes. Other major players include Cherat, Gharibwal, Kohat, Maple Leaf and Pioneer.  Topline Research said the accident affected the company’s gross margins. 

“With rehabilitation work on line-II to be completed…, the company will be able to bring its gross margins back to its normal levels,” it added. “We estimate FY18 gross margins to average 32 percent as opposed to FY17 estimated margins of 22 percent.

In FY19, we expect full-year gross margins to average 35 percent, assuming prices to remain at their current levels; margins may decline if prices go down.” The brokerage said waste heat recovery (WHR) of 12 megawatts (MW) on line-II, which also remained non-operational, will start operation with the re-commencement of silo. “The company is in the process of setting up 7.6MW WHR system on line-I, expected to be operational from January 2018,” it added.