Maple Leaf Cement Factory’s distribution costs rose due to axle load implementation in 1HFY24

Maple Leaf Cement (MLCF) has posted a consolidated NPAT of PKR2.2bn (EPS: PKR 2.09) for 2QFY24, up 38% QoQ but down 23% YoY. The reported EPS is slightly higher than our estimated EPS of PKR1.95. This takes 1HFY24 NPAT to PKR3.9bn (EPS: PKR3.60), down 10% YoY. The decline in net profitability on a YoY basis is mainly due to higher distribution costs owing to axle load implementation.

Key highlights for 2QFY24 result:

Net sales increased by 8% QoQ and 5% YoY, reaching PKR18.1bn in 2QFY24, higher than our estimated net sales of PKR16.7bn. Despite flat volumes, the sequential improvement in sales can be attributed to higher cement prices, up 5% QoQ in the North.

Gross margins expanded by 4.0ppt QoQ and 0.1ppt YoY, settling at 35.3% in 2QFY24. This outperformed our initial projection of 32.4% for gross margins, likely owing to lower-than-expected fuel costs; however, we await detailed financials for further clarity.

Distribution costs surged by 84% YoY and 43% QoQ, reaching PKR1.6bn. Implementation of the axle load regime was the main reason for the sharp uptick in distribution costs.

Among other line items: (i) finance costs saw a significant increase of 75% YoY but remained flat QoQ, driven mainly by elevated interest rates. (ii) MLCF reported an effective tax rate of 23%, compared to 28% in SPLY.

MLCF continues to demonstrate strong profitability despite the challenges posed by increasing distribution costs. With retention prices remaining high and international coal prices decreasing, margins are expected to stay elevated. We reiterate our Buy rating on the stock with a TP of PKR 56/sh.

Courtesy – IMS Research 

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