MLCF puts forth optimistic financial projections for the next five years

September 23, 2019 (MLN): Maple Leaf Cement Factory Limited, in a notification to Pakistan Stock Exchange, has set out the financial projections of the company for the next five years, which are as follows:  

The company has stated that the projections mentioned above are the outcome of Board’s assessment of current business environment and macroeconomic conditions of the country. It also put up a disclaimer within the same document, stating that the Company and / or its Directors cannot accept any liability for any investment decision by any person on the basis of above projections.

Earlier, the Board of Directors had recommended to issue 85% Right Shares of Rs. 10 each, at a price of Rs. 12 per share in proportion of 85 share for every 100 shares held. This is clearly an attempt by the company to reduce its current debt levels and improve debt/equity leverage. Keeping in view this motive, it is likely that the company would turnaround its losses in 2020, into profits in 2021 and thereafter, as suggested by the aforementioned projections.

Visibly, the projections are portraying an extremely positive picture for the company in the coming years. While reduction in debt levels and improvement in debt/equity ratio may certainly uplift company’s performance, we are a tad skeptic about ‘macroeconomic conditions’ being cited as one of the causes behind company’s optimistic projections.

To recall, the financial results announced by the company for the year ended June 30, 2019 appeared to be quite miserable, as it has posted net earnings of Rs. 1.46 billion, i.e. around 60% less than the earnings reported in last year.

Various research houses confirmed that the decline in profitability largely came from higher coal prices, which in turn was a result of persistent currency depreciation. Further injury was drawn from a colossal rise in finance cost of the company due to increase in borrowing for new plant and working capital requirements, accompanied with higher benchmark interest rates.

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