Bestway Cement Limited was incorporated in1993. The company is part of the Bestway Group which was founded by Sir Mohammed Anwar Pervez during the early 80s. The company is in the business of production and sale of cement and is the one of the biggest cement producer in Pakistan. Its first plant was set up in Hattar with an initial capacity of one million tons per annum.
In 2002, the plant's capacity was enhanced to 1.2 million tons per annum. Later in 2004, the company set up a 1.8 million tonnes per annum plant in Chakwal and the next year, Bestway Cement acquired its third cement plant, Mustehkam Cement following an offering by the Privatisation Commission. This plant had an installed capacity of 0.66 million tons and was not operational.
Mustehkam's capacity was enhanced to over 1.2 million tons. Bestway set up its fourth cement plant in Chakwal with a capacity of 1.8 million tons per annum. After acquiring Lafarge, today Bestway Cement has a market share of 18 percent per its existing capacity (over 8 million tons annually) which puts the firm in a leading position in the industry.
Bestway has a wide product range including Ordinary Portland Cement, High Early Strength Cement (Stallion), Sulphate Resistant Cement (SRC), innovative tile bond (Xtreme Bond) and grout (Xtreme Grout).
The Bestway group has a diversified portfolio including businesses involved in banking, wholesale cash & carry business, retail, real estate, food and beverage, & rice milling. Aside from owning Bestway Cement, the group is owner of the UK's second largest cash & carry chain; a joint owner of the Pakistan's third largest commercial bank UBL (holding 7.65 percent of shares), and owns one of the biggest rice milling facilities in Pakistan.
Shareholders, acquisitions, investments & efficiency:
As at June 2016, over 55 percent of the company's shares are owned by Bestway Holdings Limited while 23.65 percent are held by individuals in the public. Another four percent are held by Bestway Foundation, five percent are held by Dawood Parvez who is a Director in the company while four percent of the shares are held by the Chairman, Mohammed Anwar Pervez.
In 2015, the company assumed the management control of Pakcem Limited (formerly Lafarge Pakistan Cement Limited) with a successful bid for 75.86 percent of Lafarge Pakistan's shares at an enterprise value of $329 million. The company acquired another 12.07 percent shares of the company through the public offer process taking its shareholding in Lafarge Pakistan to 87.93 percent. Lafarge Pakistan had a plant located in Chakwal with a capacity to manufacture 2.5 million tons of cement per year. This acquisition put Bestway in a leading position in the sector.
During FY16, Bestway acquired 50 percent of the issued share capital in Ecocem Pakistan (Private) Limited held by Lafarge Industrial Ecology International for a consideration of Rs 22.4 million. Ecocem is in the business of sorting, processing and selling solid municipal waste.
Much like the rest of the industry that has fast moved to becoming energy efficient by opting for waste heat recovery (WHR) plants and coal fired power generation set up at plant sites, Bestway also has WHRs at Chakwal, Hattar and Farooqia plant sites.
After the take-over of Lafarge, the company also decided to set up a WHR at Kallar Kahar with a generation capacity of 12MW which is expected to be fully operational in the third quarter of FY17. This will potentially bring down energy costs.
Operational and financial performance:
Between FY11 and FY15, capacity remained the same and dispatches grew from 3.2 million tons to 4.85 million tons, steadily growing over the years. After the Pakcem merger, the increased capacity resulted in a growth in dispatches; with total sales of cement going up to 6.9 million tons in FY16. Production went from 4.2 million tons in FY15 to 5.8 million tons in FY16; a growth of 36 percent.
The new capacity has worked well for the company. In the 70 days to 30 June 2015, Pakcem contributed revenue of Rs 2.18 billion and profit of Rs 209.66 million to the Bestway's financials. Combined capacity utilisation for FY16 stood 73 percent compared to 70 percent in FY15 with the Farooqia and Hattar plant running at over 85 percent capacity.
The company's revenues have gone up from Rs 13.3billion in FY11 to Rs 32.69 billion in FY15; jumping up to Rs 45.7 billion in FY16 which is a jump of 40 percent. Comparatively, Lucky cement, the other major leader yielded revenue of Rs 45.2 billion in FY16. The two firms are neck and neck in terms of capacity and top-line.
The company improved its margins from 22 percent in FY11 to 46 percent in FY16 by cutting down on costs and becoming from energy efficient. Just the power costs were cut down in the past two years-whereas they were 60 percent of total cost of sales in FY15; they were brought down to 53 percent in FY16.
The company's net margins have gone up from one percent to 29 percent between FY11 and FY15, but fell down to 26 percent during FY16 likely due to the increase in indirect expenses and taxes. Administrative expenses went up from 2 percent to 5 percent of sales between FY15 and FY16; finance costs went up from 1 percent to 4 percent while taxes went from 7 percent to 11 percent contributing to a meeker net margin. The bottom line for the company has grown from Rs 179 million in FY11 to Rs 11.8 billion in FY16.
Snapshot of Q1FY17:
The fiscal year 2017 will be Bestway's best yet; after enhancing its capacity through the acquisition, the company is already doing well. Its first quarter for the fiscal yielded a top line of Rs 11.5 billion; a 23 percent growth from Q1FY16. The production went up by 21 percent while dispatches grew by 20 percent between the two periods.
Margins too were improved significantly-in Q1FY16, the company has a gross margin of 40 percent which grew to 46 percent in Q1FY17. The company's after-tax profits grew by 61 percent between while according to the Directors' report, the company also increased its capacity utilisation from 71 percent to 85 percent which shows marked improved and speaks highly of the decision to merge.
Opportunities, threats and outlook:
Bestway has a lot going for it. It is leading the pack of cement manufacturers all clamoring to move up the ladder, with one of the highest market capitalisation and bottom line. It has investments in UBL and it is working on improving the efficiency of its acquired plant in Chakwal by investing in a WHR that will help cut down on direct costs.
Bestway also just signed an MOU with Pakistan Railways for the transportation of coal from Port Qasim-with about 14,000 tons of coal moving from Bin Qasim to Khattar and about 6,000 tons to Pind Dadan Khan. This agreement could potentially cut down costs further.
Meanwhile, Bestway is also making a bid for Dewan Cement's northern plant along with Lucky, Fecto, Kohat and a Chinese company by the name of Anhui Couch. Though the unit is sick, and would need heavy investment to revitalise it, it would take Bestway's capacity up.
Current construction demand brought on by CPEC and other infrastructure development across the country bodes well for the sector on the whole, and specially Bestway since it has an existing market share of over 18 percent and has an established brand across the country. However, most cement players are expanding capacity led by DG Khan and Lucky with a combined industry expansion of 22 million tons (that have been announced); and will come online by FY20.
In that sense, a lot of companies will capture a greater market share, and if Bestway does not expand capacity, others would be chipping away at its existing share. Lucky for instance will go up to 10 million tons or more in the next five years, while DG Khan will go up to 9.2 million tons. Other smaller players such as Maple leaf, Kohat, Gharibwal will see a greater market share. It will be best for Bestway to start thinking along these lines, even though it just acquired a plant.
For now, vastly improved margins, a solid top-line, and greater capacity utilisation all tie in well for Bestway. Better handle on energy costs through the upcoming waste heat recovery unit can be achieved. Past and current investments have proved to be very savvy and speak for a long-term sustainability. Bestway is here to stay.
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