Kohat Cement Company Limited
Kohat Cement Company Limited was incorporated in 1980 and is an ISO 9001-2008 certified company, listed on stock exchanges of Pakistan and engaged in manufacturing of grey and white cement.
The quality of their cement is better than approved British and Pakistani standards.
The company has a total capacity of roughly 3 million tons (including that of grey and white cement) and the plant is located in Kohat about 60 kilometers from Peshawar.
Industry review FY11 had been a rough year for cement manufacturers because of the Great Floods of 2010 and low PSDP expenditures.
Consequently, in FY11, local cement dispatches had fallen by over 6 percent to 22 million tons versus FY10.
At the same time, export demand in FY11 was also lull due to excess capacity and low prices in export markets, in particular, the GCC countries.
Consequently, export dispatches from Pakistan also decreased by nearly 12 percent to 9.4 million tons versus the previous fiscal year.
However, FY12 saw cement prices going up, lending some price-based support to local cement manufacturers.
Profitability FY12 started off on a good note for the Company with revenues rising by more than 80 percent in 1QFY12 relative to 1QFY11.
Overall, gross margins improved by nearly 7 percentage points against the same period of the last year.
The improvement in revenues can be attributed to an increase in cement prices in the country.
A marked improvement in the Company's operating income was also seen in 1QFY11.
Even though the operating income is less than a percent of revenues during the first quarters of both fiscal years, it increased nearly nine times in 1QFY12 against the same quarter in the last fiscal year.
Operating margins overall improved by roughly 8 percentage points over the same period last year helped by the improved turnover and better operating performance.
This further cascaded down into a better net margin for the quarter under review, which improved from a loss in 1QFY11 (net margin of negative 9 percentage) to a positive net margin of 7.5 percent in 1QFY12.
In FY11 as well Kohat cement's performance was commendable at a time when the entire cement sector of the country was struggling to maintain margins due to lower dispatches and low prices.
The company managed to report their highest sales volume of roughly 1.5 million tons in FY11 versus 1.2 million tons in FY10.
This was also reflected in a whopping improvement of over 60 percent in turnover for the company versus the previous fiscal year.
Overall, while the company had registered a net loss of Rs 327 million in FY10 to a profit of Rs 63 million in FY11.
In fact, the strength of the improvement in the Company's profitability since the beginning of FY12 can be gauged from the fact that EPS in 1QFY12 at Re.0.99 per share was higher than the full year EPS in FY11 of Re.0.43 per share.
Leverage Despite the better margins enjoyed by Kohat relative to the industry, the company's leverage position doesn't appear to be very sound.
At a debt-to-equity ratio of 70:30 in FY11, the Company is even more leveraged than Maple Leaf cement-a company known for its leverage problems in Pakistan's cement sector.
Like peers, most of this debt has likely been taken up for capacity expansion in anticipation of increased cement demand.
The Company's high finance costs also testify to the high leverage position.
Finance costs had been over 10 percent of revenues in the past few fiscal years.
But the interest coverage ratio improved in FY11 relative to FY10, most likely due to the Company repaying a major chunk of its long-term loan in FY11.
At the same time, improvement in revenues, witnessed in 1QFY12, lend some hope with regards to the Company's ability to pay off its liabilities as they come due.
Liquidity In FY11, Kohat Cement's liquidity position improved somewhat as the Company repaid a major chunk of its long-term finances.
Consequently, from a current ratio of 0.43 in FY10, it inched up to 0.70 in FY11.
At 0.70, Kohat's current ratio is a wee bit better than that of several players in the industry, lending some credibility to the Company's liquidity.
Investment and valuation Analysts maintain a positive outlook for Kohat Cement with Top-line Securities claiming, "Kohat Cement stood as the best performer in the cement sector universe.
The scrip posted a double-digit positive return of 22 percent in 2011 YTD outperforming the benchmark KSE 100 by 28 percent."
The Company has not paid out dividends in the form of cash or bonus shares since FY09 and the scrip is currently trading at the local bourse at about Rs 10 per share.
Going forward, a rise in cement prices is likely to keep Kohat Cement's profitability afloat.
At the same time, an improvement in cement demand is also expected in the current fiscal year.
Also, the Company expects to resume the production of white cement in FY12, which had not been produced in FY11 due to curtailment of Sui gas by SNGPL.
Kohat Cement Company Limited | Business Recorder