Bestway Cement: Debt laden growth to continues

September 13, 2023

One of the largest Cement manufacturers Bestway Cement Ltd (BWCL) reported earnings of PkR 11.8 billion, translating to an EPS of PKR 19.94 in FY23. This marked a significant increase of 16% YoY compared to FY22, when earnings were PKR 10.2 billion with an EPS of PKR 17.17. Additionally, the company announced a final cash dividend of PkR 6.0 per share in 4QCY23, bringing the total dividend for FY23 to PkR 21.0 per share.

BWCL recently apprise the Investor Community about its Financial Performance, Corporate Actions and Future outlook. Below is the summary.

During FY23, the company’s total dispatches declined by 16% YoY, in line with industry trends, amounting to 6.57 million tons. This figure includes 6.5 million tons of domestic dispatches in the northern region and 0.8 million tons of exports.

BWCL’s retention price stands at approximately PkR 13,900 per metric ton.

The company expanded its production capabilities by introducing two new production lines, each with a capacity of 7,200 tons per day (TDP) clinker, at Mianwali and Hattar. Both lines are equipped with Waste Heat Recovery Power Plants (WHRPP) and an Air-Cooled Condenser System (ACC). In FY23, these production lines were commissioned, and the company also increased its solar power generation capacity by approximately 34MW to reach 89.6MW. Further expansion, with an additional generation capacity of around 7MW, is anticipated in FY24. The company maintains its position as the lowest-cost cement producer.

The company utilized 54% of its capacity in FY23, a decrease from the 73% utilization rate in FY22. The management forecasts a slight increase in utilization to a range of 55% to 60% in FY24.

The coal mix for BWCL consists of 60% Afghan coal and 40% from local and other sources. The management mentioned that an imported coal order is pending and is expected to arrive next month. Currently, the coal mix is 60% Afghan coal and 40% local, with some imported coal expected soon. Afghan coal is priced around PKR 47,000 to 52,000 per ton, local coal is approximately PKR 44,000 per ton, and imported coal is around PKR 52,000 to 53,000 per ton. The preference remains toward Afghan coal due to its superior quality, although timely availability remains a concern. Furthermore, the demand for Afghan coal by cement players is about 600,000-700,000 tons per month, while the supply is only approximately 300,000-400,000 tons per month.

The average coal inventory cost for the company is around PkR 50,000 per metric ton, inclusive of Afghan coal (PkR 47,000/MT to PkR 52,000/MT), local coal (PkR 44,000/MT), and imported coal (PkR 53,000/MT).

The company maintains a high level of leverage with PkR 76 billion in debt, comprising PkR 23 billion in short-term and PkR 20 billion in subsidized long-term debt. This results in a Debt-to-Asset (D/A) ratio of over 50%.

In FY23, the company’s power generation mix consisted of 43% internal and 57% from the grid. However, the management anticipates a reduction in reliance on the grid to 46% in FY24. The current grid rates are approximately PkR 31 per unit during off-peak hours and PkR 37 per unit during peak hours, compared to PkR 24 per unit and PkR 31 per unit until June 2023.

The company expanded its solar power generation capacity from 55.4MW to 89.6MW in FY23. Future plans include increasing it by an additional 7MW in FY24, reaching a total solar power generation capacity of 97MW.

Looking ahead, demand is expected to face continued pressure due to economic slowdown factors. Nonetheless, the off-take is projected to recover to FY22 levels, and the company anticipates maintaining a regular dividend payout.