Fauji Cement’s Clinker Silo plant collapses

The Clinker Silo plant of the Fauji Cement suddenly collapsed on line 2 (new line) of its factory, which has damaged the company’s production line, the company’s notification to Pakistan Stock Exchange (PSX) said on Monday.

Fauji Cement Company Limited (FCCL) has reported that there has been an incident at its plant which has damaged the company’s line 2 production.

According to information provided by the company, the Raw Meal Silo of FCCL, containing 25,000 tonnes of raw materials, has collapsed, damaging the coal mill area of Line 2.

Although it is too early to give an accurate assessment, the company’s line 2 having 7,200 tonnes per day (2.2 million tonnes per annum) of clinker capacity will remain nonoperational for approximately five to six months, according to the company. This translates into temporary cement production loss of around 1.36 million tonnes based on six-month assumption, an analyst estimates.

As per the notice, the company is in the process of starting up its production line 1 (old line) which has 3,700 tonnes per day (1.1 million tones per annum) of clinker capacity.

The analyst believed that due to this incident, the company’s 2016-17 cement production will decline by around 42 per cent (1.36 million tonnes) from 2016-17 production estimates of 3.24 million tonnes. This translates into bottom line impact of around 40 per cent, assuming no exports. Consequently, 2016-17 EPS will now clock in at Rs 3.1 per share against previous estimate of Rs 5.2 per share.

The company also said that dispatches out of stock will continue as cement mills are operating normally. This should not hamper FCCL’s 2015-16 production for the remaining one month.

The analyst does not expect any impact on 2015-16 dividend payout as the company has sufficient cash in hand (Rs 4.2 billion as of Mar 2016 accounts). However, 2016-17 dividend payout will likely be curtailed by around 42 per cent from Rs 4.5 per share due to decline in earnings.

The analysts suggest that the company will be required to incur capital expenditure to the tune of Rs 1-2 billion, which can be later claimed under insurance cover.

They also highlight that due to the market arrangement among cement manufacturers, FCCL will gradually recover this production loss by selling more in the future.

Analysts believe that other cement players like Bestway Cement, Cherat Cement, DG Khan Cement, Fecto Cement, Flying, Kohat Cement and Maple Leaf Cement will likely be key beneficiaries in the short run with increased off-take owing to plant proximity. However, these companies need to adjust their quota downwards in FY18 onwards to accommodate FCCL’s production loss.