Maple Leaf: High growth prospects

Maple leaf Cement posted its financial results for the quarter ending September 2016 boosting a 12 percent bump in revenues (unconsolidated) clocking at Rs5.6 billion in Q1FY17. This is in line with the outgoing fiscals revenue growth of 13 percent. And this is just the first quarter where overall cement dispatches have grown by 8.3 percent year-on-year with a significant slowdown in September.
While gross margins grew by 30 percent; indirect expenses all went up while other income came down in 1QFY17 against 1QFY16. Even so, with strong revenues and pinched costs of production, the company posted a 44 percent growth in after-tax profits clocking at Rs1.2 billion against Rs0.8 billion in 1QFY16. Net margins soared from 17 percent to 22 percent meanwhile, gross margins were the real star, maintaining the position the company was in the outgoing fiscal at 43 percent in this first quarter (1QFY16: 37%).
Maple leaf is in a growing position to capture a greater share. To cut down on electricity costs and reduce dependence on the national grid, the company formed a wholly-owned subsidiary, Maple Leaf Power Limited (MLPL), primarily to generate and supply power to Maple Leaf Cement.
It was announced in 2015 that it would be setting up a coal-fired power plant with a capacity of 40 MW with a Chinese supplier; Sinoma Energy Conservation Limited, costing Rs5 billion. The project would commence production toward the end of FY17 and has a life of 25 years. This would help to alleviate pressure on energy costs that usually comprise 60 percent of total costs of cement production.
Maple leaf is currently running on 3.2 million tons of clinker production annually, which is about 7 percent of the total cement production in the industry. However, the company announced a brownfield expansion of 7,000 tons per day of grey clinker production at an estimated cost of Rs20 billion. By our estimates, given the total expansion announced in the industry of 22 million tons; Maple leafs share would go up to 8 percent in the next four to five years.
In the end, cost efficiency, sustained margins, and expansion plans of Maple Leaf tie in well with the cement industry and cement demand dynamics.

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Maple Leaf Cement 1QFY17

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Rs (000)                       1QFY17       1QFY16    YoY

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Sales                       5,556,065    4,965,847    12%

Cost of Sales               3,175,237    3,140,390     1%

Gross Profit                2,380,828    1,825,457    30%

Distribution cost             373,481      303,031    23%

Administrative cost           121,778      112,513     8%

Other operating expenses      149,266       76,586    95%

Finance cost                   46,066      185,930   -75%

Other income                    4,450        5,045   -12%

Profit before taxation      1,694,687    1,152,442    47%

Taxation                      471,277      305,713    54%

Net profit for the period   1,223,410      846,729    44%

Earnings per share (Rs)          2.32         1.60    45%

GP margin                         43%          37%

NP margin                         22%          17%

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