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

STCL held its corporate briefing session today, wherein they discussed the company’s performance during FY23. Notes of the briefing are presented below:

• Increase in gas prices is expected to add an outflow of PkR113mn per month.
• Company’s North and South sales revenues are split in the ratio of 80% and 20%, respectively.
• Company’s solar expansion project is in its final stages, with panels already deployed. Further optimization is in progress.
• With respect to energy requirements, management apprised that kilns are powered using a mix of natural gas and LPG, whereas gas and diesel are used for powering gensets. Coal is substituted for gas where gas pressure fluctuation poses problems to power critical and non-critical machines. Unit-1 of the facility utilizes grid electricity as well. However, the management did not mention respective ratios of different power sources during a year.
• With respect to a question on the impact of Chinese competitors, the management stated that despite this hurdle, their brand identity and vertical integration (network of 300+ retail outlets) positions them well to cater to any customer requirements. Further, STILE products are superior in quality than Chinese products, as per management.
• Management did not mention any possible product price change owing to higher gas price revision recently.
• In a response to a question regarding closure of Master tiles, the management mentioned differentiation in their business models, as STC eliminates distributors and instead retails their products’ directly, in order to maintain control.
• Management stated that PkR600mn under WIP is related to Unit-2’s KE grid connection related equipment and related payments.
• Transferring to LPG, the plants faced issues with heat management. Company amended the plants to automatically manage heat as required to ensure product quality.
• Company prioritizes energy mix to utilize cheapest sources first, such as solar presently. Hence, the mix of different sources changes accordingly.
• Stock in trade includes inventory written down to NRV which are 3rd grade products and their value is amended as per IFRS requirements from time to time. Their sale is subject to orders, since the company prioritizes sales of high quality products over inferior quality to not affect the brand name.
• Future demand outlook is subject to economic stability leading to stability in housing and other construction projects. As per management, no change is foreseen in the near future, keeping volumes at current levels.
• Retail outlets contribute around 10%-15% of the total sales volumes.
• Company’s plan of localization of raw materials is moving forward, hence in volumetric terms the company has increased local share compared to imports. But in terms of value, even lower imported materials’ volumes share is increasing on the back of PkR-US$ deterioration. Some minerals are not available locally, hence their risk cannot be hedged.
• No major BMR is in plan, although only minor repairs and maintenance are expected as part of CAPEX.