May 07, 2021 (MLN): Maple Leaf Cement Factory Limited (MLCF) recently conducted a corporate briefing session where the management discussed the latest financial results, development and the future roadmap of the company.
To recall, the company posted net profits of Rs2.8bn for 9MFY21 against the net loss of Rs2.7bn reported in the same period last year. The earnings per share of the company clocked in at Rs2.59, compared to the loss per share of Rs3.2 in the corresponding period last year.
The volumetric sales during 9MFY21 clocked in 3.6MTs maintaining its domestic market share to nearly 8%. In addition, a turnaround in profitability was attributable to a sharp improvement in margins, higher local retention prices, lower interest rates, rising construction activities, and favorable macros. During the period, the company realized gross margins of 24% from 3% on the back of improved retention prices and lower fuel cost.
In order to boost productivity, as per management, MLCF has signed a contract with plant supplier Chengdu Design & Research Institute of Building Materials Industry (CDI) for the supply of equipment & engineering for its new line-4 of 7000 TPD. The production line will enhance current clinker capacity by 28% from 7000 TPD to 25500 TPD.
In addition, management also mentioned that the total estimated CAPEX for the required expansion along with WHR is Rs18.5bn.
This translates into EV/ton of US$57. Expansion cost is a bit lower due to available excess capacities of Packing Plant, Silos and Mining Sites, as per report covered by Topline Securities.
Talking about the expected date of the plant to come online, the management informed that plant is expected to launch by August 2022 for trial production. However, Insight Securities has built a capacity expansion to be effective from 2HFY23.
Considering the financial aspect of the project, management stated that the company will not issue any rights further and all the investment will be catered via debt financing and internal cash generation. The company is intended to finance this project by undertaking the subsidized loan of Rs8b-9bn whereas Rs3bn are arranged via Temporary Economic Relief (TERF) and Rs5bn under Long Term Financing Facility (LTFF) facility.
Talking about the efficiency, the management reported that MLCF is working to expand the capacity of Waste Heat Recovery (WHR) to 25MW from 16MW. The company is also getting Rs1bn under TERF.
This project is likely to accrete earnings by 12% or Rs0.7/share on an annualized basis, estimated by Sana Hanif, an Investment Analyst at Insight Securities.
Highlighting the post-expansion scenario, the management estimated that Rs21bn will be expected as the peak debt on the company’s book during the ongoing year.
With regard to the recent development, the company is keenly working to develop a new product called “Patti”. This product is used before painting on the wall. For this purpose, the company has inducted an ex-employee from Birla Cement India for the consultancy purpose as Birla Cement is known as the pioneer of “Patti”. As per expectations by the company, Patti will capture 20% of the white cement capacity by the mid of the next financial year.
On the government side, management mentioned that stakeholders of the Cement sector are demanding to reduce Federal Excise Duty (FED) and for which All Pakistan Cement Manufacturers Association (APCMA) is in discussion with concerned authorities. If this happens, then coal price impact may not be passed onto the consumers otherwise surge of Rs15-20 per bag is expected in the near term. Management also informed that the company possesses enough coal on-site to fulfill the demand for 4 to 5 months. If the prices will get reduced, the whole process will come down to three months, Topline research said.
Talking about the other proposals given to the government from the industry, management informed that few of the budget proposals are related to White Cement and MLCF share is pretty high (95%) in the market within this category of cement.
On a geographical basis, the company stated that the North region has a capacity of 51mn tons. Having said that management expects 12% growth by the end of FY22. Given the scenario, the demand is also expected to increase by 4-6mn tons that requires the need of 2-3 plants every year, the research added.
The management also discussed that due to the high base of cement demand, the present expansion cycle is completely different from the previous cycles. As per as the utilization is concerned, it is not expected to be lower than 70%.
The management also underscored that Greenfield projects like Fauji Cement (FCCL), Bestway (BWCL) and Gharibwal (GWLC) take more than three years to come online. That said, expansions will be staggered and will naturally be absorbed.
On the payout front, the dividend from Maple Leaf Power will continue to come into the core cement business. This time amount was higher due to the cumulation effect, the management explained.
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