Despite hawkish stance of Competition Commission of Pakistan and an oversupply of around 13 million tons in the sector,the Kohat Cement Company Limited(KOHC)has been aggressively pre-paying its long-term loans,which is not only decreasing its fixed cost but also creating room for healthy payouts for equity investors.Experts said that strong pricing scenario in the domestic market along with cooling off coal prices and healthy demand outlook has been the driving factor for the cement industry.Despite hawkish stance of the CCP,cement prices inthedomestic market jumped by 18 per cent owing free market economy forces in FY12 and remained resilient around Rs440/bag since April 2012.Experts believe that the pricing power of the industry to remain strong in medium term and assume per bag ex-factory prices of Rs 375 and Rs 370 for FY13 and FY14,respectively,compared to Rs 385/bag prices during 4QFY12.This coupled with healthy volumetric growth is likely to improve revenues at 4 year CAGR(FY11-15)of 17 per cent to Rs 11.2b.KOHC has achieved a 26.5 per cent YoY growth in domestic sales during FY12,a massive outperformance compared to the industry,which grew by an 8.8 per cent YoY.Exports on other hand suffered a steep decline of 29.6 per cent YoY to 273k tons;reducing total growth to 12 per cent,still better than the industrys growth of 3.5 per cent.The company achieved a 4 years high capacity utilisation of 59 per cent in FY12,highest since it started operations of its expansion project.It is expected companies volumes to grow at 4 years CAGR of 4 per cent to 1.9 million in FY16 from 1.7 million in FY12,with domestic demand and exports improving at CAGR 4.5 per cent and 1.5 per cent respectively.KOHC is amongst the few cement companies,which have paid attention to aggressively deleveraging its balance sheet using the opportunity provided from strong pricing scenario.Because of losses in FY10,the company had to reschedule its long term debt whereby it increased its grace period and deferred its mark up payments.However,strong pricing scenario created healthy cash flow generation for the company,which pouncing on the opportunity,prepaid its long term liabilities to the tune of Rs 1.1b in FY12.This is likely to reduce Debt to Capital ratio to 55 per cent in FY12 from 72 per cent in FY11.Aggressive deleveraging is expected to reduce finance cost by 49 per cent YoY to Rs 301 million in FY13,with a per ton fixed cost reduction of Rs 92.Amid strong cement pricing,healthy demand outlook and falling finance cost is likely to yield a massive growth at 148 per cent CAGR during FY11-15 to Rs 2.4b.The company is expected to generate strong free cash flow to equity of Rs 4/share and Rs 8/share in FY12 and FY13,respectively.This coupled with the fact that the company does not have aggressive capital expenditure plans.
UAECEMENT.COM-Sep,10,2012
