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MLCF - FY23 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Nov 17, 2023)

Maple Leaf Capital Factory Ltd (MLCF) held its corporate briefing earlier today to apprise investors on their FY23 financial results and future outlook of the company. Following are the key highlights of the call:

• To recall, company posted earnings of PkR5.38/sh in FY23 vs. PkR4.24/sh in the previous year, where the increase in retention prices lead to bottom-line growth.
• The finance cost of the company witnessed a 44%YoY increase in FY23, primarily attributed to higher financing rates and the capitalization of the cost for the new line.
• Company maintains a moderate level of debt, with the Debt to EBITDA ratio at 1.1x, and is further expected to drop below 1.0x by the end of the current fiscal year. Furthermore, ~PkR4bn is subsidized debt at a rate of 3.5-4%.
• Cement retention prices have seen a significant rise, averaging PkR13.5k/ton in FY23 compared to PkR9.7k/ton in the previous year, and has further increased to an avg. of ~PkR14.7k/ton in Sept quarter.
• The fuel mix currently stands at 70%/15% for local & Afghan coal, respectively, with the remaining 15% from alternative sources (biomass, rice husk, etc). The weighted average price of fuel was PkR41k/ton, which has now declined to PkR40.5k/ton despite an increase in coal prices, largely due to a higher contribution from alternative fuel (Current: 15% vs. 7.5% previously).
• On the pricing front, the current rates of Local/Afghan coal are at PkR40k/52k per ton, while alternative fuel costs ~PkR15.5k/ton with a Gross Caloric value of 3.3k.
• Current power mix of the company is Coal-fired power plant (CFF) 55%, WHR 31%, Solar 4%, with the remaining sourced from the grid. Further, average power cost stands at PkR21/kWh.
• Additionally, company has a 7.5MW solar project in the pipeline with an estimated cost of PkR800-900mn.
• According to management, the sector still has the power to pass on the impact of future inflation to customers, as cement prices haven't increased much compared to other construction material prices, thanks to an effective strategy of cement players to switch to other coal sources (Afghan & Local). Due to these factors, management expects gross margins to remain elevated going forward.
• On the demand front, management anticipates industry growth in the range of -2.5% to 3% YoY in FY24, and would be highly dependent by GDP growth of the country.
• Company has launched a new product, "Putty," and is optimistic about its prospects. Management is confident that the product, based on the Indian model, will replicate the success of replacing 60% of the acrylic putty market in 2 years (as is the case in India). The margins of this product are higher than that of white cement.
• Moreover, the company has imported Pet coke (primarily used in the manufacturing of white cement) at US$110/ton CNF, securing stock for the next 7-8 months.
• On the investment front, management iterated that company is entering into healthcare industry with a hospital project of 250 beds in Islamabad, estimated at a cost of PkR30bn. The projected debt-to-equity ratio for the project is 50:50, with MLCF effectively holding 67% of the equity.
• The said project is estimated to be completed in 3 years, with 50 kanals of land already purchased in Islamabad. Management is optimistic about the project, citing higher gross margins prevalent in the sector compared to the cement sector.