Bestway: the King in the North

There is a new king in the North; for the countrys cement industry. After successful completion of the acquisition of Lafarge cement, Bestway has emerged as the domestic leader in production capacity. Its four plants: Bestway-Hattar, Bestway-Chakwal, Mustehkam-Hattar and PakCem-Chakwal; collectively boast about eight million tons of cement. Thats 17 percent of total domestic capacity.
Its dominance of the North region is even more formidable. It began in 2005, when Bestway acquired Mustehkam Cement, which operated just a few miles down the road from Bestways Hattar plant. The strategy of acquisition within the proximity of its existing plants paid off well for the company.
This time around, Bestway went and bought itself a neighbour of its Chakwal plant. The addition of the previously Lafarge Cement named plant, added about 2.047 million tons of capacity. But the benefits that will accrue may tower beyond this tally.
In the past four quarters, Lafarge Cement reported average gross margin of 29 percent. However, finance costs and administrative expenses took a large toll and average net margin for the same period was a skinny three percent.
By comparison, Bestway had reported average gross margin of 40 percent while its net margin was a much beefier 28 percent. The financial muscle and economies of scale that Bestway brings to the table will go along way in improving net returns from the Lafarge plant.
Chief Executive of Bestway Group, Zameer Choudrey has announced that $30 million will be invested in the newly acquired plant. Part of that injection will probably go towards ridding the company of hefty finance costs.
Don be surprised to see the cumulative distribution cost dropping as well. The companys plants are aligned between northern Punjab and Khyber Pakhtunkhwa (north-east of Peshawar). This is, arguably, the region where large-scale infrastructure projects including roads, dams and mass transit schemes are moving at the best pace.
The peeve for Bestway may lie within the administrative expenses of their fresh acquisition. About half of the admin expenses of Rs993.14 million, for Lafarge in FY14; went towards royalty and technical assistance fees. Given the magnitude of this cost, this should be the primary benchmark from a cost management perspective.