Maple Leaf Cement (MLCF) announced 9MFY15 earnings of Rs 2.3bn (EPS Rs 4.4) down 3percent YoY, in line with market consensus estimates. However, profit before tax increased by 29 percent. In 9MFY15, MLCF recorded revenue of Rs 15bn as against Rs 13.7bn last year which is up 9 percent, led by 9 percent increase in volumetric sales to 2.1m tons compared to 1.9m tons in 9MFY15. However, average net retention prices remained flat at Rs 363/bag.
Financial charges on the other hand witnessed a decline of 22 percent in 9MFY15. To highlight, MLCF has considerably reduced its debt by Rs 6.1bn in last 2 years. "We believe MLCF has retired its Sukuk and syndicated debt by 22 percent QoQ in 3Q2015 to Rs 4.2bn," analysts said. Decline in earnings in 9MFY15 is attributable to the imposition of ATC (Alternate Corporate Tax) according to which, MLCF has to record at least 17 percent of its accounting profit in taxes. This has lifted the effective tax rate of the company by 24.6ppts YoY to 25.5 percent. In 3Q2015 alone, effective tax rate increased by 268bps QoQ to 25 percent.
Against ATC, MLCF has filed a law suit and expects tax reversal of Rs 400m in ongoing fiscal year. As a result, there could be a positive EPS impact of Rs 0.75, subject to court's decision in favour of the company. Despite lower energy costs, company's cost of sales increased by Rs 13/bag QoQ in 3QFY15. This was mainly due to planned plant shutdown (which escalated company's fixed costs) and some GIDC provision recorded in 3QFY15. "We, therefore, expect MLCF's margins to expand in 4Q2015 on the back of full realisation of lower energy costs and strong local sales demand," said analysts.
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