Kohat Cement Company Limited (PSX: KOHC) was established by the State Cement Corporation of Pakistan in 1984. In 1992, the government privatized the company. The company was listed on the stock exchanges of Pakistan in 1984. The principal activity of the company is the manufacturing and sale of cement [grey and white clinker]. ANS Capital [Private] Limited is the holding company of KOHC.

Pattern of Shareholding

As of June 30, 2022, the company has 200.86 million shares outstanding which are held by 2542 shareholders. Associated companies, undertakings, and related parties with a holding of 55.08 percent shares are the largest shareholders of the company. Directors, CEO, their spouses, and minor children hold 17.09 percent shares of the company. Mutual funds have a stake of 14.15 percent in the company followed by the general public with 11.3 percent shares. The remaining shares are held by other categories of shareholders including Insurance companies, Banks, DFIs and NBFIs, Joint stock companies, NIT and ICP, etc.

Historical Performance (2019-2024)

KOHC’s topline has strengthened over the period under consideration except for a dip in 2020 and 2024. Its bottom line slid in 2019, however, stayed in the green zone. In 2020, KOHC posted gross, operating, and net losses. The company’s bottom line has been exhibiting growth thereafter. The company’s margins followed a downward trajectory until 2020, followed by a rebound in the next two years. In 2023, KOHC’s margins slightly ticked down, however, bounced back to attain their highest levels in 2024. The detailed performance review of the period under consideration is given below.

In 2019, the company’s top line grew by 16.42 percent year-on-year. During the year, KOHC’s sales volume registered a 4.68 percent year-on-year rise to clock in at 2.35 million metric tons which included 0.12 million metric tons of export sales. However, a tremendous increase in the cost of sales due to an increase in the prices of imported coal coupled with Pak Rupee Depreciation proved to be a double whammy for the company. Moreover, the increase in the prices of packaging material and electricity also didn’t bode well for KOHC. To top it off, cement prices also fell in the 4QFY19 which also affected the profitability of the company. With a 3.52 percent year-on-year dip in gross profit, the GP margin clocked in at 26.7 percent in 2019 versus the GP margin of 32.2 percent posted in 2018. Distribution expenses dropped by 11.91 percent in 2019 due to cement loading charges incurred in 2018. Conversely, administrative expenses surged by 25.11 percent in 2019 due to higher payroll expenses as the company expanded its workforce from 599 employees in 2018 to 626 employees in 2019. Other expenses grew by 48.36 percent year-on-year during 2019 mainly due to massive exchange loss on account of Pak Rupee depreciation. OP margin fell from 30.3 percent in 2018 to 23.8 percent in 2019. The company was able to contain its finance cost by 56.76 percent in 2019 despite a high discount rate during the year. This is due to the less geared capital structure of the company with a debt-to-equity ratio of 22:78. KOHC posted a net profit of Rs.2468.66 million in 2019, down 17.16 percent year-on-year. This translated into EPS of Rs.12.29 in 2019 versus EPS of Rs.14.84 posted in the previous year. NP margin stood at 15.8 percent in 2019 vis-à-vis the NP margin of 22.2 percent recorded in 2018.

2020 jolted the company with a drastic 27.77 percent year-on-year drop in its topline. This came on the back of a 6 percent year-on-year drop in volumes and a 24 percent year-on-year drop in cement prices. The company registered a gross loss of Rs.24.32 million in 2020. The company kept its operating expenses in check. Its distribution expenses dropped by 24.7 percent in 2020 coming on the back of lower payroll expenses and a curtailed sales promotion budget. Administrative expenses also dipped by 6.1 percent in 2020. Other expenses declined by 96.42 percent in 2020 due to considerably lower profit-related provisioning and no exchange loss. However, with a 43.73 percent year-on-year drop in other income primarily due to lower income from bank deposits, KOHC posted an operating loss of Rs.147.61 million in 2020. Finance costs enlarged by 789.40 percent in 2020 owing to long-term financing obtained during the year for the completion of its new cement line. The company registered a net loss of Rs.443.74 million in 2020 with a loss per share of Rs.2.21.

In 2021, KOHC’s topline boasted 112.89 percent year-on-year growth. This was backed by 69.3 percent year-on-year growth in off-take. The growth was propelled by government initiatives for the real-estate sector including low-cost housing projects and subsidized house financing along with CPEC-related activities during the year. Improved selling prices during the year proved to be cherry on top resulting in a gross profit of Rs.5965.35 million in 2021 with a GP margin of 24.8 percent. KOHC took optimum benefit from the increased market demand and made its new production line fully operational in 2021. Distribution expenses mounted by 46.54 percent in 2021 due to higher payroll expenses and extensive sales promotion drives undertaken during the year. To activate its new production line, the company hired additional resources which took the tally from 683 employees in 2020 to 696 employees in 2021. Other expenses grew by 1876.81 percent in 2021 mainly owing to higher provisioning done for WPPF and WWF expenses due to high profitability. Other income slid by 13 percent in 2021 due to lower foreign currency gain and lesser realized gain on investment at FVTPL.KOHC posted an operating profit of Rs.5403.01 million in 2021 with an OP margin of 22.5 percent. High interest rates paved the way for finance costs to grow by 26.2 percent year-on-year. This was although the company paid off a large portion of its outstanding liabilities during the year which resulted in its gearing ratio falling from 32.82 percent in 2020 to 8.89 percent in 2021. KOHC registered a net profit of Rs.3497.51 million in 2021 with EPS of Rs.17.41. NP margin clocked in at 14.5 percent in 2021.

In 2022, KOHC’s topline picked up by 36.66 percent; however, the growth was price-led rather than volume-led. Local and domestic sales posted a decline of 0.5 percent and 95.6 percent respectively in 2022; however, prices had to be kept high to absorb the exorbitant rise in prices of coal, electricity, and petroleum products. The company used a mix of local and Afghan coal to mitigate the effect of elevated international coal prices. Such measures enabled KOHC to improve its GP margin to 29.8 percent in 2022. In absolute terms, gross profit strengthened by 64.48 percent in 2022. Distribution expenses surged by 29.7 percent in 2022 due to higher salaries and wages paid during the year. Although number of employees remained intact during the year, inflationary pressure resulted in a 12.76 percent spike in administrative expenses in 2022. Other income improved by 304.36 percent in 2022 mainly on account of realized gain on investment in treasury bills. Other expenses escalated by 73.1 percent in 2022 due to higher profit-related provisioning. KOHC’s operating profit grew by 75.15 percent in 2022 with OP margin clocking in at 28.8 percent. Finance cost grew by a mere 4 percent year-on-year despite multiple upward revisions in discount rate during the year. This was because the company paid its entire short-term loans during the year. Moreover, a massive increase in short-term investment resulted in a negative gearing ratio in 2022. The bottom line of KOHC registered 43.65 percent year-on-year growth in 2022 to clock in at Rs. 5024.28 million in 2022 with EPS of Rs.25.01 and NP margin of 15.3 percent.

Mounting economic and political instability resulted in a standstill in construction and infrastructure-related activities in the country, resulting in a 15.71 percent decline in the overall dispatches of the cement industry. KOHC’s sales volume ticked down by 15.66 percent in 2023 to clock in at 3 million M tons. On the positive front, export sales grew by over 312 percent in 2023 to clock in at 31663 M tons. However, it constituted only 1 percent of the total sales volume of KOHC in 2023, hence couldn’t create much of a difference in its overall sales volume. The Spike in the price of petroleum, coal, electricity, and imported consumables, was further exacerbated due to the Pak Rupee depreciation. The company tried to control its costs by setting up a solar power plant and switching to cheaper local and Afghan coal. However, its GP margin ticked down to 26.8 percent in 2023 with only a 6.33 percent increase in gross profit in absolute terms. Distribution expenses mounted by 44.2 percent in 2023 due to heightened salaries and sales promotion expenses incurred during the year. The number of employees remained intact at 696 in 2023, however, inflationary pressure pushed up administrative expenses by 12.1 percent in 2023. Other income picked up by 202.23 percent in 2023 mainly on account of hefty dividends received from investments in mutual funds. Higher profit-related provisioning drove up other expenses by 30.81 percent in 2023. KOHC recorded an 18.46 percent taller operating profit in 2023 while maintaining its OP margin at 28.8 percent. Finance costs surged by 37.68 percent in 2023 due to monetary tightening. Net profit improved by 15.85 percent in 2023 to clock in at Rs.5820.75 million with EPS of Rs.28.98 and NP margin of 15 percent.

In 2024, KOHC’s net sales dipped by 0.7 percent in 2024. This was on the back of 13.82 percent fewer dispatches recorded by the company during the year on the back of the economic slowdown. Export sales ticked up by 32.19 percent to clock in at 41856 metric tons, standing at 1 percent of KOHC’s total sales volume. An increase in cement prices and a change in the coal mix coupled with the stability in the value of local currency resulted in a 7.9 percent uptick in gross profit in 2024 with GP margin climbing up to 29.1 percent in 2024. Distribution expenses ticked up by 12 percent in 2024 due to inflationary pressure. Higher payroll expenses resulted in a 23.17 percent spike in administrative expenses in 2024. Other income strengthened by 113.56 percent in 2024 mainly on account of dividends received from investments in mutual funds. Lesser profit-related provisioning translated into a 22.34 percent decline in other expenses in 2024. The company registered a 28.94 percent higher operating profit in 2024 with OP margin climbing to its highest level of 37.4 percent – thanks to a substantial other income. KOHC was able to cut down its finance cost by 8.5 percent in 2024 by squeezing its loan portfolio on the back of a strong liquidity position. As of June 30, 2024, the company had no short-term loans outstanding and its long-term loans also ticked down. KOHC posted a net profit of Rs.8893.46 million in 2024, up 52.79 percent year-on-year. This translated into EPS of Rs.45.27 and NP margin of 23 percent.

Future Prospects

The demand is expected to remain tamed in the near to medium term as construction activities are feeble which may take time to recover due to weak investor sentiments and soaring cement prices. High pricing power enables cement companies to keep their toplines and margins buoyant despite tamed demand. Besides, KOHC also benefits from its sizeable other income which is equivalent to 11.53 percent of its net sales in 2024.