Step aside Lucky Cement, Fauji Cement is now #2 in the North The merger between Fauji and Askari cement might prove to be a gamechanger
I
n 2012 there was news about Fauji Cement Limited looking into acquiring Askari Cement of the Army Welfare Trust. That, however, did not go through at the time. Instead, this month, Fauji Cement Company Limited merged with Askari Cement. Askari Cement, however, is now a subsidiary of the Fauji Foundation, a Pakistani conglomerate active in financial services, fertilizer, cement, food, power generation, gas exploration, LPG marketing and distribution, security services, amongst many other sectors. Established in 1954 as a charitable trust, the conglomerate has grown over the years. It made very little sense for the conglomerate to have two separate cement companies within its portfolio, especially given the fact that the management of the two was the same. Keeping that in mind, the group decided to amalgamate the two.The pattern of shareholding of Fauji Cement shows that it has a free float of 55%. 48% stake is owned by associated
32
companies and 28% by the general public. After this, FCCL is set to become second biggest cement player in North after amalgamation of Askari cement with and into FCCL and expansions of 2.05mn tons each at D.G Khan and Nizampur site. Furthermore, FCCL market share in North would increase from current 6.7% (11.9% including Askari) to 13.2% which would be second highest after BWCL market share of 19.2% in north region. To highlight, they have only incorporated the impact of FCCL Greenfield expansion of 2.05mn tons as we wait for further disclosure of Askari amalgamation transaction to incorporate this in our valuation. To highlight, post amalgamation synergies would provide further upside to our FCCL Jun-22 TP of Rs27.6/sh.
The timeline
T
he buildup to the amalgamation was quite calculated. In April 2020, Waqar Malik, a civilian joined Fauji Foundation as the managing
Director and also joined Fauji Cement as Chairman. A month later in May, the company announced to the PSX that a resource sharing agreement had been signed with Askari Cement. This was announced following approval from the Competition Commission of Pakistan. A year later in February, Fauji cement announced Greenfield expansion of 2.05 million tons at DG Khan with a CAPEX of Rs 32 billion, and Askari Cement announced Brownfield expansion of 2.05 million tons at Nizampur Site. On 28 October, 2021, Fauji Cement board was directed to proceed with the amalgamation of Askari Cement within Fauji Cement.
What does this merger mean?
T
hrough an amalgamation with Askari Cement, Fauji Cement Company is now set to become the second largest cement player in the North Region.
