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CEPB_FY23 Analyst Briefing takeaways (AKD Off the Analyst's Desk Nov 07, 2023)

AKD, Off the Analyst's Desk

CEPB_FY23 Analyst Briefing takeaways

 

Century Paper & Board Mills Ltd. (CEPB) held its analyst briefing yesterday to apprise investors on the F23 result and future outlook. Following are the key highlights:

 

• To recall, the company posted earnings of PkR2.25/sh in FY23, a significant 59%YoY decline from PkR5.51/sh in the preceding year. This downturn is primarily attributed to a contracted gross margin (9% vs. 13% in FY22) and heightened financial charges due to increased borrowing costs.
• The decline in gross margins was primarily due to rising raw material prices (owing to high inflation & currency depreciation) and increased fuel costs. The impact of increased raw material and energy costs amounts to PkR9.6bn and PkR3.6bn, respectively.
• Company's major raw materials include 1) indigenous pulp (fibrous), produced in-house with locally procured wheat straw, 2) waste paper (mostly local, with some quantity imported), and 3) wood pulp imported from Brazil, Canada, and other Scandinavian countries.
• The current price of wood pulp is US$650-700/ton. Meanwhile, local waste paper costs PkR40-65/kg (quality-dependent) and the price of imported waste paper currently stands at US$135-150 per ton.
• As per the company's presentation, country's total demand for Paper & Board (P&B) products declined to 1.93mn tons in FY23 compared to 1.99mn tons in the previous year. Of the total demand, 20-25% is met through imports, while the remaining is locally sourced.
• Likewise, company's total production also declined to 195k tons in FY23 from 255k tons in SPLY (Utilization dropped to 74% from 96% in FY22). Meanwhile, sales for the year reached 207k tons, as the company outsourced some box production instead of relying solely on self-production.
• In total P&B sales, the company holds an ~11% market share, while 22% is imported, and 53% is attributed to the unorganized sector. Category-wise, the coated-duplex board (CDB) secures a 36% market share (domestic competition market share is 10%), and in folded-box board (FBB), CEPB’s market share is 22%, while 56% being imports and 21% filled through domestic competition. To note, both these categories fall under the coated packaging board (CPB) segment.
• Company currently has a total capacity of 274k tons, with 81% dedicated to CPB, where CBD/FBB constitutes 64% (174k tons) and 17% (45k tons) of the total capacity, respectively.
• Current coal mix of the company stands at 75:25 for local and imported coal, respectively. Furthermore, management informed that attempts were made to use Thar coal, but its availability posed a challenge.
• On the power front, company currently relies on self-generation for ~60-65%, with the remainder sourced from the grid. Meanwhile, steam is generated majorly through coal.
• The management apprised that the energy requirement per ton of paper is ~700-750 kWh, along with 3 tons of steam.
• Company has recently reduced its product prices, leveraging from the availability of power from the grid, declining coal prices, and the recent appreciation of the rupee. This strategic move has provided the company with an opportunity to regain its market share.
• Furthermore, for improvement in the energy mix, company has upsized its grid capacity to 16MW from 5MW, outsourced biomass boilers for low-cost steam, and partially shifted from SNGPL to UGDC for procuring gas at concessional rates.
• Going forward, management anticipates an improvement in gross margins compared to the previous year.

 

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