The cement industry has interesting dynamics. Even though Bestway Cement has the highest capacity (7.9million tons) in the industry after the company acquired Lafarge Cement, Lucky (who only recently took the second spot) with an existing capacity of 7.03 million has always been considered the leader. And for good reason.
In fact, with all the expansions coming through, Bestways leading position in terms of capacity could be short-lived. Bestways latest financial statements for the half year point toward some areas where the company needs work. There is no doubt Bestway has brand recognition, and with greater spending on marketing it has managed to snag a good market share. Higher dispatches in the first half of FY17 translated to greater revenuesgrowing by 22 percent at Rs25.8 billion (against Luckys Rs23.4 billion in 1HFY17).
But costs of production is indeed Bestways Achilles heels. Its location in the North, gives it a cost disadvantage compared to companies located near the south, a major advantage that Lucky enjoys. Costs in 1HFY17 grew by 15 percent but greater revenue stream ensured healthier margin growth from 42 percent in 1HFY16 to 46 percent in 1HFY17 (Lucky: 50%).
Because the company does not have any future expansion plans, borrowing costs are low for now and a tighter fist on administrative expenses, together helped into a stronger bottomline Rs1.7 billion in 1HFY17, up by 38 percent year-on-year (Lucky: 13%).
The fundamentals are strong but vying for top spot will require more. Indeed, this is probably why Bestway is in the frontline hoping to acquire the northern plant and related assets of Dewan Cement. It is in competition with Lucky, Fecto and Kohat who have all expressed the intention to buy out Dewan. Dewan has two plants in Hattar and Dhabeji with capacities 1 million tons and 1.7 million tons respectively. If Bestway outbids the rest, it will add an additional 1 million tons.
In the next five years, while acquiring Dewan wouldnt put Bestway in the lead, perhaps the company will announce an expansion. Even so, it is a top player and will continue to do so. More investment in energy efficiency would go a long way to trim costs further if the company wants to get to the unbelievably high standards set forth by Lucky.
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