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AKD Securities Limited – Off the Analyst’s Desk (November 21, 2022)

Karachi, November 21, 2022 (PPI-OT): KOHC: 1QFY23 Analyst Briefing Takeaways

Kohat Cement Company (KOHC) organized its analyst briefing today to discuss 1QFY23 results and company’s future outlook.

To recall, KOHC posted PAT of PkR1.78bn (EPS: PkR8.9), up 28%YoY. Company posted strong GMs of 31.3% during the quarter vs. 27.6%/33.2% during 4QFY22/1QFY22.

Total industry dispatches for the 1QFY23 clocked in at 9.62mn tons, down 21%/25% on QoQ/YoY basis. Meanwhile, offtakes for KOHC during the same period stood at 688k tons, down 17%/20% on QoQ/YoY basis. Capacity utilization for the quarter stood at 55% for both KOHC and the industry.

Regarding future outlook, management expects dispatches to recover in the post-flood rehabilitation process expected in the coming quarters. Overall, management expects local industry dispatches to remain down by 10% during FY23.

Company’s coal mix comprised of 30% Imported, 38% Afghan and 32% Local coal in 1QFY23 compared to 70% Afghan Coal and 30% Local Coal in the previous quarter.

Coal prices stand as follows: Mozambique coal is PkR45k/ton (CFR: US$150/ton), Local coal PkR32-33k/ton, Afghan coal PkR50k/ton. Average cost of coal stood at PkR41k/ton, up 97% YoY. Company carries one month of coal inventory.

Regarding the power mix, share of captive generation stood at 27% (vs. 30% during FY22 average). Recent hikes in base tariff has resulted in cost of grid to increase to PkR32.35/kwh, while avg. cost for the quarter stands at PkR25.42/kwh (vs. PkR14.42/kwh SPLY). Company’s captive is running solely on WHR (waste heat recovery), as higher prices of RFO and coal have made it unfeasible to use them, as it was historically.

On the expansion front, additional cement capacity of 11mn tons is expected to be added during FY23, whereas total 16mn tons shall be added in the next three years. Furthermore, land is being procured in Khushab for a greenfield cement production line, with work on other infrastructure developments underway as well (utilities, connections, roads etc.). Finally, an additional 10MW solar power plant is in the works as well.

Due to PkR’s sharp devaluation and rising input costs, revised cost of Khushaab expansion project is expected to be ~PkR35bn compared to the initial estimate of PkR30bn.

Average Cement bag MRP during 1QFY23 stood PkR995/bag, vs. PkR955/650/bag during 4QFY22/1QFY22. Retention price for the quarter stood at PkR12,850/ton, up 15%/63% on QoQ/YoY basis.

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