Bestway knows the way

Bestway has contributed to its fair share of hype in the cement industry over the past year and not least because of its plans for expansion in the north. The company (PSX: BWCL) was supposed to acquire plant and assets of the sick Dewan Cement unit after a competitive bid with other players who had similar interests, but only a few months of announcing that, it bowed out of that potential deal. 

Bestway climbed the proverbial ladder in the cement industry knocking out market leader Lucky Cement (in terms of capacity, not spirits) after it acquired Lafarge cement in 2015. Today it stands on top with more than 17 percent market capacity share. And like a true champ, its balance sheet speaks for itself.

The company closed off FY17 with a 13 percent bump in its top-line and an equilateral increase to its bottom-line clocking profits year-end of Rs13 billion. The company has been giving price discounts on sales (about 3 percent of gross turnover) that may have worked to boost sales but ultimately affects margins.

The industry is dependent on imports of coal and other inputs, and costs are sensitive to fluctuations in international prices. This has squeezed margins for most of the cement players in the outgoing fiscal year and Bestway is one of them—margins dropped to 44 percent from 46 percent in FY16. The company kept a tighter fist on indirect expenses—that remained 10 percent of revenues in FY16 and FY17. Finance cost fell but it will increase once the company takes on debt to finance its expansion of 1.8 million tons capacity. This capacity enhancement would place Bestway somewhere in the top over the next few years, but second to Lucky that is undergoing more than one expansion.

In its third quarterly report, Bestway described itself as “the most efficient and lowest cost producers in the industry”. Now while it is certainly on top in terms of capacity and revenues, is it the most efficient? And what makes a cement supplier most efficient in Pakistan. This is an important question to ask. So “who is the fairest of them all”—we will figure out in this column next time.