Analyst Briefing: MLCF plans to raise cement prices to pass on the impact of hike in int’l coal prices

November 26, 2020 (MLN): Maple Leaf Cement Factory Limited (MLCF) conducted corporate briefing session yesterday where the management discussed latest financial results and company’s outlook.

To recall, the company posted net profits of Rs 555 million for 1QFY21 against the net loss of Rs 982.3 million reported in the same quarter last year. The earnings per share of the company clocked in at Rs 0.51, compared to the loss per share of Rs 1.41 in the corresponding quarter last year.

As per the management, the improvement in earnings was attributable to better retention prices where local grey retention prices increased by Rs 800/ton. The company also witnessed a decline of 10.63% YoY in dispatches, however, higher retention prices and cut in FED to Rs 1,500/bag from Rs 2,000/bag, offset the impact of decline in dispatches.

White cement contributes 2-3% to the total volumetric sales, however, in terms of value its contribution is around 10-15%. In good times, white cement contributes roughly 20% in overall profits. MLCF commands 95% of the white cement sales in Pakistan, the management said.

During the quarter, the company realized gross margins of 16% on the back of improved retention prices and lower fuel cost.

Presently, the retention price of the company stands at Rs 6,200 per ton as compared to Rs 5,848 per ton in 1QFY20. The company plans to increase cement prices soon to pass on the impact of recent hike in international coal prices, the management informed.

On the recent verdict of Lahore High Court on CCP fine of Rs.6.5 billion imposed in 2009, the management acknowledged that the verdict was unfavorable, and they are planning to challenge the decision in the courts, key takeaways covered by Intermarket Securities highlighted.

Discussing about business expansion plans, the management informed that currently they are expanding company’s WHR plant capacity by 9.3MW to 25MW and the plant is expected to come online by Sep’21. The LC has been opened in September 2020 and the total cost will be around Rs1.8 billion, with 83% debt and 17% equity. the report said. In addition to this, the company expects that the project will reduce electricity cost by around 15% (Rs 8-9/bag).

Moreover, regarding potential expansion announcements by other cement producers, the management believes that the brown-field plant will take at least 2 years to come online from the date of announcement and the green-field plant or new entrants will take around 4 to 5 years to bring it online.

With regards to cement sector outlook, the management expects that local cement demand will grow by 15-16% YoY in FY21, which will mainly be driven by private sector demand, government’s low-cost housing scheme, lower interest rates and development of mega dams and Special Economic Zones (CPEC).

On the payout front, MLCF is expected to receive dividends from its power business in FY21. This will be the first time Maple Power business will disburse dividends; previously the company retained profits in order to avoid tax on dividend income and other tax implications, the report underscored.

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Posted on: 2020-11-26T17:09:00+05:00

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