Maple Leaf Cement Factory Limited (PSX: MLCF) was set up in 1960 as a public limited company. It is part of the Kohinoor Maple Leaf Group, with Kohinoor Textile Mills Limited as its holding company, holding 55 percent stake.
Maple Leaf Cement has three production lines for grey cement and one line for white cement, while its total installed capacity for clinker stands at 5,550,000 tons annually. Some of its export destinations are Afghanistan, Middle East, and African countries. It also sells domestically, primarily in the Northern and Central regions of the country.
As at June 30, 2020, the company is primarily held by its associated companies, undertakings, and related parties, with nearly 56 percent shares held under this category. Within this, Kohinoor Textile Mills Limited is a major shareholder holding 55 percent of the shares. Some 21 percent shares are with the local general public, followed by 11 percent in foreign public. The directors, CEO, their spouses, and minor children hold less than 1 percent. The remaining 12 percent of the shares are with the rest of the shareholder categories.
Historical operational performance
While topline has been consistently increasing over the years, profitability has declined after reaching a peak in FY16.
In FY17, topline for the company registered a 2.4 percent growth. Local dispatches grew by 7 percent to 2,931,708 metric tons as a result of an increase in activities in the domestic market. This was mostly dominated in the private sector construction activities and to some extent the materialization of the budgeted Public-Sector Development Program (PSDP). Export volumes were affected due to tensions on the Afghanistan border as well as competition from Iran. Note that Afghanistan is one of Pakistan’s largest export destination. Owing to higher coal and fuel prices, which are two especially important inputs for the company, operating margin reduced to nearly 30 percent, while the net margin fell further to almost 20 percent due to a higher tax expense.
There was an improvement in the growth rate of sales revenue during FY18; it stood at 7 percent while local dispatches grew by nearly 19 percent to 3,487,492 metric tons. Export sales continued to fall. Apart from the lower margin on export sales, the latter was also adversely affected by barriers erected by other countries such as anti-dumping duties by South Africa and non-tariff barriers in India. On the costs side, cost of production jumped to close to 73 percent, up from 60.5 percent of revenue in FY17. This was due to increase in packing materials, fuel expense and power and associated costs. The effect of this also trickled down to the net margin that was recorded at 14 percent.
In FY19, the company saw the lowest growth in sales revenue at 1 percent. Unlike in the last two years, local dispatches saw a 4.3 percent decline, while sales volumes saw a 4.3 percent decline. Export sales, however, picked up to a volume of 334,671 tons, exhibiting an increase by 21 percent. The decline in local dispatches was attributed to lower private sector spending and uncertainty due to the year beginning with general elections and the new government taking over. Slower business activity on the domestic front, combined with currency devaluation, encouraged export volumes. However, profitability and margins were lower in the international market due to greater competition. Cost of production, as a percentage of revenue increased further to 81 percent of revenue, squeezing margins, while finance cost also made up nearly 5 percent of revenue; the latter largely came from the increase in interest rates. Thus, net margin reduced to 5.6 percent for the year.
At a little over Rs29 billion, topline saw a nearly 12 percent climb during FY20; sales volume increased by almost 42 percent, to 5,201,820 metric tons, while local dispatches increased by a little over 50 percent. This was attributable to the start of a new production line 3. The 42 percent increase in sales volume only translating to a 12 percent increase in revenue indicates that the selling price had reduced. This was due to higher supply in comparison to demand, hence higher competition as well. Despite the rise in sales revenue, the company incurred a gross loss due to higher coal prices as a result of significant rupee devaluation; fuel expense was also considerably higher than last year. Thus, the year ended with a loss of nearly Rs5 billion.
Quarterly results and future outlook
There was a 5 percent increase in sales revenue during 1QFY21 year on year. This was a direct result of increase in sales price as a result of growing demand; the latter in turn was a result of growth in the construction sector. Volumetrically, clinker and cement production, and local sales, all three exhibited a decline year on year for the quarter. Given the high input prices seen in same period last year, cost of production in 1QFY21 was lower in comparison, at almost 84 percent. This resulted in an improvement in profit margins from 1QFY20 where the company incurred a loss of Rs1 billion.
In order to uplift the economic activity and aid the economy to recover during Covid-19, the government announced a construction package. This is expected to generate demand in the second quarter and onwards. The company sees that the cement industry could benefit in future from private sector spending, housing finance schemes, dams/water reservoir construction and developments regarding CPEC.