Despite a significant contraction in gross profit margins, Fecto Cement Limited (FECTC) achieved a robust 31.83% increase in net profit for the half year ended December 31, 2025, reaching PKR 590.17 million. This positive bottom-line performance, translating to an Earnings Per Share (EPS) of PKR 11.77, was primarily fueled by a substantial gain from the sale of an investment property and effective finance cost management.
Financial Performance Overview
Total sales revenue grew by 16.82% to PKR 6.54 billion compared to the same period last year, largely driven by a 33.09% increase in total dispatches. Local sales surged by 20.58% to PKR 6.51 billion, reflecting improved domestic demand. However, export sales plummeted by 82.24% to just PKR 36.34 million. A key challenge was the 12.22% decline in the average retention price per ton, impacting overall revenue quality.
Despite higher sales volumes, gross profit fell by 27.64% to PKR 865.78 million, with the gross profit margin contracting sharply from 22.17% to 13.30%. Operating profit also saw a significant drop of 43.54% to PKR 477.55 million. The turnaround to net profit growth was primarily due to two critical factors: a substantial 55.15% reduction in finance costs to PKR 48.51 million and a significant 'other income' of PKR 321.64 million, which included a PKR 269.59 million gain from the sale of an investment property.
The company experienced a negative cash flow from operations of PKR 695.65 million, a notable shift from a positive flow last year. This was mainly due to increased investment in stores and spares (PKR 547.24 million) and stock-in-trade (PKR 427.55 million). However, cash flow from investing activities turned positive at PKR 371.13 million, largely due to the proceeds from the investment property sale. On the balance sheet, current assets, particularly inventory, increased significantly, while short-term borrowings also rose substantially from PKR 384.41 million to PKR 844.17 million.
Key Operational Drivers
Operationally, FECTC demonstrated robust performance, particularly in volumes:
- Cement production increased by 34.62% to 456,637 tons.
- Total dispatches grew by 33.09% to 453,979 tons, primarily driven by a nearly 40% surge in local dispatches.
The company maintained an impressive capacity utilization of 91.33%, significantly higher than the industry average of 50-60%, showcasing strong operational efficiency. FECTC's overall market share improved to 1.76% from 1.45%, with its North region market share rising to 2.42% from 2.05%. The significant gain from the sale of investment property was a one-off item that substantially boosted the bottom line, masking the underlying pressure on operational profitability from lower retention prices.
Management Strategy and Outlook
The sale of investment property, approved by shareholders, indicates a strategic move to optimize the asset base or generate liquidity. Notably, the Board of Directors did not recommend any cash dividend, bonus shares, or right shares for the period. This suggests a focus on retaining earnings, possibly for future growth or strengthening the balance sheet, despite the healthy net profit.
Management's review highlights a cautiously optimistic macroeconomic outlook for Pakistan, with signs of stabilization, easing inflation (down to 4.6% in FY25 from 29.1% in FY23), and a projected GDP growth of 2.6-3.6% for FY26. The cement industry is anticipated to benefit from recovering domestic demand and infrastructure initiatives, though overcapacity in the North Zone remains a challenge. FECTC aims to continue focusing on operational efficiency and cost management to navigate industry challenges.
Investor Takeaway
Investors should note FECTC's mixed performance: strong net profit growth driven by non-operational income (asset sale) and finance cost reduction, contrasting with a sharp decline in gross and operating margins due to lower retention prices despite higher volumes. FECTC's high capacity utilization and increasing market share are positive signals for its operational strength in a competitive industry.
The negative cash flow from operations, driven by working capital build-up, warrants close monitoring. The absence of a dividend despite strong net profit might disappoint income-focused investors but could signal management's intent to reinvest for long-term stability or growth. Key watchpoints for investors include future domestic demand trends, the company's ability to improve pricing power or further optimize costs to restore gross margins, and the management's strategy for working capital management. The one-off gain from the asset sale will not recur, so future earnings will depend more on core operational performance.