Arif Habib Limited (AHL) arranged a special session of MLCF with its clients and representatives of the investor community, for the company management to shed light on the changing dynamics of the cement sector.

Please find the key takeaways below.

Highlights

· During 8MFY22 sales in North arrived at 26mn tons, 3% lower compared to last year. While sales in South were 11% higher compared to last year at 5.3mn tons.

· Reason was this disparity was the much stricter COVID related restrictions in north, plus south had support of some new projects initiated by the Sindh and Federal government.

· Huge dip in exports from North at 63% YoY during 8MFY22 WAS due to virtually no sales of cement to Afghanistan while exports from south also contracted by 21% led by high sea freight (USD 31-32/ton at present) causing many logistics issues.

· On the costing and pricing front, the management updated that the industry was able to the pass the impact of cost pressures.

· In FY21 contribution (retention – variable cost) was PKR 2,500/ton, while in 1HFY22 the contribution went up to PKR 3,150/ton

· Prices rose from PKR 515/bag in 1HFY21 to PKR 676/bag in 1HFY22.

· Current price in North is ~PKR 727/bag. Retention is close to PKR 9,500/ton.

· Whereas PKR 350/bag is the variable cost.

· March cement offtake growth is projected at 3.9mn tons. This annualized is around 47mn tons.

· So MLCF will be operating at an 85-90% capacity utilization, even at this price level of PKR 727/bag.

· On the coal front the management update that MLCF started consuming Afghani coal before other players. This is a rare source of revenue for Afghanistan as other trade has stopped so as off now, the company is easily using 65-70% of its coal requirement through Afghan coal. Coal average cost for 1HFY22 was USD 117/ton.

· Afghan coal is paid for in Rupees on a delivered basis (ex-factory).

· At present, average price of Afghan coal is between USD 150-160/ton (on a delivered basis).

· Per month capacity of Afghan coal is 500k tons per month, and the Pakistani cement industry requires 650-700k tons per month. So if it is solely used for the North market, as it is much more viable compared to USD 400/ton import cost plus sea freight plus local freight of RB2 (South African coal).

· Afghanistan therefore is trying to ramp up its coal capacity.

· PET coke is also 30-35% cheaper than imported coal and MLCF is using this coupled with Afghan coal and local coal in its mix.

· 15% of the mix is local coal, which was approximately PKR 4,000 per ton. Whereas Afghan coal cost was PKR 31,000 (PKR 4,340 per ton).

· Additionally, the company has built up stocks at a very attractive cost.

· Forward Afghan coal is being offered at PKR 34,000-35,000 per ton.

· Current cost of coal inventory is USD 172/ton. Forward orders will be booked at 197/ton (a week to 15 days forward).

· PET coke cost was USD 117/ ton in 1HFY22 whereas current cost is between USD 220-250/ton. Two sources: US and Saudi Arabia. US coal has less Sulphur of 5-6% while Saudi coal has Sulphur of 8-9%.

Courtesy – AHL Research