Part of Kohinoor Maple Leaf Group (KMLG), Maple Leaf Cement Company (MLCF) is a subsidiary of Kohinoor Textile Mills Limited (KTML) both of which are listed on the stock exchanges. The history of the company dates back to 1956 when it was established by the West Pakistan Industrial Development Corporation (WPIDC) with a capacity of 300,000 tons clinker per annum. Another company, White Cement Industries Limited (WCIL) was formed in 1967 with a clinker capacity of 15,000 tons per annum. The two were combined in 1974 and transferred to newly established State Cement Corporation of Pakistan (SCCP). Later, SCCP set up another production company called Pak Cement Company Limited (PCCL) with a capacity of 180,000 tons per annum. The three companies were then privatized in 1992 and merged into Maple Leaf Cement. MLCF went public in 1994.
Over the years, the company added a production line using dry process technology, increased capacity while in 2006; it converted the existing wet process line to a fuel efficient dry process white cement line. In 2008, two existing lines of white cement 50 tons per day each were converted into an oil well cement plant and the company added a Waste Heat Recovery (WHR) plant in 2011.
Maple Leaf plants are located in Iskanderabad District, Mianwali. Currently, the company operates two production lines to produce grey and white cement; the company holds 90 percent of the market share in the latter type of cement. With its current 3.37 million tons of cement production capacity, the company's share in the industry capacity is about 7 percent. The company has leased lands that are mined by contractors to supply raw materials like limestone, clay and gypsum.
The cement producer has worked on the construction of airports, runways and air bases as well as building of dams, barrages and waterways other than highways and motorways. Some of the projects include Chashma Nuclear Power Plant, Jinnah Barrage, Multan International Airport, Neelum Jhelum Dams, Allama Iqbal International Airport and WAPDA House Lahore.
The company has exports markets in Afghanistan; Gulf States; South Asia; Africa; Indian Ocean Island Republics; and Central Asia.
Ownership, investments and expansions
The company is owned by Kohinoor Group. More than 55 percent of the Maple Leaf's shares are held by its holding company KTML, whereas 11.8 percent of the shares are held by general public and 22 percent are held by unspecified foreign investors.
The company formed a wholly owned subsidiary Maple Leaf Power Limited (MLPL) that would generate and supply power to Maple Leaf Cement in order to reduce dependency on the national grid. It was announced last year (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. The project would commence production at year end FY17 with a life of 25 years. The project costs Rs 5 billion.
On the expansions front, the company announced on Sep 5, 2016 along with its financial results for FY16 that the board had approved a brownfield expansion of 7,000 tons per day of grey clinker production at an estimated cost of Rs 20 billion. This would be a dry process technology. This additional capacity would take capacity to 10 percent of the industry's installed units given that total expansions are expected to go by 10-15 million tons in the next 5 years.
MLCF gave a loan of Rs 500 million to its holding company (for a time period of November 1, 2015 to 31 October 2016), KTML to earn income on the loan and to provide working capital requirements of KTML at a mark-up of one percent above its average borrowing cost. A similar loan/advance facility of Rs 300 million was given the year before that. In its PSX notice two days ago, the company said it would be giving loans up to Rs 1,000 million in KTML this year too following approvals of shareholders.
Debt obligations, then and now
Today MLFC is extending loans to its holding company but it was itself suffering from a financial crisis a decade ago, and has come a long way since. In 2008, the company was in deep financial pressure owing to large debt that it took to make some expansions. During the next two years, the company could not meet its debt obligations and had to request for restructuring with Kohinoor group investing Rs 1 billion as 'quasi-equity' interest-free loan into the company in FY10. However, in FY11, poor demand and high interest rates again made it difficult for the company to meet its debt obligations, and was downgraded by rating agencies.
Things came around when the company showed better performance in FY12 onwards; with an improvement in operating margins at the back of improving sale prices of cement that helped the company improve cash flows to service debt obligations. During FY15, the company paid off its long term debt of Rs 4 billion that improved its debt equity ratio from 0.9 to 0.3-it stood at 2.0 in FY10.
Financial performance since FY10
While production came down from 3.3 million tons in FY10 to 3 million tons in FY15; and dispatches came down from 3.36 million tons to 2.96 million tons between these time periods; revenues grew by 52 percent, going from Rs 13 billion to Rs 20.7 billion in six years. Profitability also increased in tandem - from incurring losses of Rs 2.5 billion to a healthy profit of Rs 3.45 billion in FY15. Meanwhile net margins went up from -19 percent in FY10 to 17 percent in FY15.
Cost of sales has been substantially reduced. Fuel and power was 59 percent of the total cost of sales in FY14 but was reduced to 54 percent in FY15. In fact, cost of sales as a share of revenues went down from 78 percent to 57 percent, consequently bumping up the margins from 22 percent to 36 percent between FY10 and FY15.
Cost of production went down due to a reduction in raw material costs commodity prices particularly coal went down. Power costs also declined as global oil prices plummeted. The company also started operating furnace oil based engines due to low oil prices that helped cutting down costs.
Meanwhile, there was almost no idle capacity throughout the time period in review. In fact, in FY10, the company was operating at 99 percent of its production capacity, which came down to 84 percent in FY11 and stood at 89 percent in FY15.
Exports have had a healthy share in the company's total dispatches and stood at 21 percent of total dispatches in FY15 which was an increase from FY14 of 20 percent. Though the dip in exports to Afghanistan did affect exports, other destinations such as India and other African markets enabled the company to retain its export share.
Snapshot of FY16 and outlook
FY15 was a great year for the company but FY16 proved to be even better. After tax profits grew by 41 percent compared to 22 percent in FY15; clocking at Rs 4.8 billion in the outgoing year. Meanwhile, revenues grew by 13 percent in FY16 against 9 percent increase in FY15. These revenues were earned with an 8 percent bump in total dispatches between FY14 and FY15, so it is quite possible that the company sold between 2.6 to 3 million tons of cement in FY16- though official numbers are not available to us.
With improving financial health, the company paid a final cash dividend at Rs 2.5 per share and an interim dividend of Rs 1.5 per share this outgoing fiscal. Though distribution, administrative and other expenses went up in FY16, while other income came down, there was a significant decrease to finance costs. Low cost of sales saved the day with margins going up to 43 percent in FY16 against 36 percent in FY15. These margins are the same as DG Khan Cement which is bigger than Maple Leaf in terms of production capacity and competitive with other fast growing cement producers such as Kohat at 46 percent, Lucky at 49 percent, Attock at 40 percent, and Cherat: 37 percent in FY16.
With the expansion possibly coming through in the next few years, an uninterrupted supply of electricity from its subsidiary company once the coal fired power plant kicks in, and such high margins, there is no stopping Maple Leaf from enjoying the gains from the upcoming construction demand in Pakistan which the industry will be seeing soon.
Though cement producers are not relying on export demand and are investing in expansions in light of domestic projects that will be enough to justify said expansions, it only works in MLCF's favour that it has markets in India and is exploring other African countries. The Indian market may shield any loss to export share in the Afghanistan or South African markets- the former has cheaper Iranian cement and the latter has levied an anti-dumping duty on Pakistani cement. It wouldn't hurt for the long term to explore and market its products to other destinations. It's only good prudence!