Kohat Cement Company Ltd. (KOHC) held its analyst briefing earlier today to apprise investors on their FY23 & 1QFY24 results and future outlook. Here are the key highlights:

· To recall, the company posted earnings of PkR29.0/11.3 per share in FY23/1QFY24 vs. PkR25.0/8.9 per share in FY22/1QFY23, respectively. The growth in earnings is mainly attributable to an overall increase in retention prices.

· The retention price increased by 40% YoY in FY23, averaging at ~PkR13k/ton, which further increased to PkR14.5/ton in 1QFY24. Going forward, margins are expected to remain at similar levels unless the dollar rate fluctuates.

· In FY23, KOHC sales volumes also declined by 16%, similar to the industry sales decline. However, in 1QFY24, sales growth outpaced the industry with a quarterly increase of 11% compared to industry growth of 8%QoQ. Moving ahead, management expects industry offtakes to grow by ~5-6% YoY.

· In FY23, the coal mix was 35%/37%/28% for Imported/Afghan/local coal, respectively. In recent quarter, this mix has changed to 45% Imported, 28% Afghan, and 27% local coal. Additionally, the average coal cost decreased from PkR45.5k/ton in FY23 to ~PkR44.6k/ton in 1QFY24. The inland freight cost from Karachi to Kohat is ~PkR9k/ton

· On the power front, captive generation remained at 31% in FY23, which has increased to 34% in 1QFY24, owing to commissioning of 10MW solar plant. The average power rate was PkR23.07/kWh in FY23, which rose to PkR27.54/kWh in the first quarter of the current fiscal year.

· After successfully commissioning a 10MW solar power capacity in FY23 (currently contributing ~4-5% to the power mix), company has plans to add another 15MW in solar capacity. Post-Commissioning, the solar contribution is projected to surge to around 15% of the total power mix. Additionally, the BMR for line 3 is actively underway and is anticipated to conclude in the current quarter, leading to improved operational efficiency.

· For the new line at Khushab, management apprised that the project’s cost would be finalized once economic uncertainties and currency fluctuations settle, at which point the company will proceed with the project. The total import size of the plant is estimated to be ~US$70-80mn, and with an exchange rate of PkR300/US$, the total cost of the plant is calculated to exceed PkR40bn.

· Company has secured the land and initiated the application process for electricity connection at Khushab. As per management, upon the finalization of imports, it is anticipated to take approximately two years for the plant to be commissioned. Additionally, the management has expressed openness to acquiring any existing plant in the country if a suitable opportunity arises.

· As per management, the company is considering another buyback.

Courtesy – AKD Research