IGI Securities Limited – Flash Note (29-10-2019)

Karachi, October 29, 2019 (PPI-OT): Kohat Cement Company Limited – Lower retention prices amid intense competition and enhanced cost structure generate meagre EPS of PKR 0.44 in 1QFY20

Kohat Cement Company Limited (KOHC) announced its financial results for 1QFY20 with earnings clocking in at PKR 88mn (EPS: PKR 0.44), down by 83%YoY, as compared to net profit of PKR 529mn (EPS: PKR 2.63) reported in the same period last year.

The decline in earnings during 1QFY20 is primarily attributable to substantially lower retention prices on domestic cement sales driven by intense competition amongst the regional players and significantly increased cost structure of the Company.

Net sales of the Company during 1QFY20 dropped by 15%YoY as against the comparative period. The decline in sales is attributable to both drop in overall dispatches of the Company which are expected to have been declined by ~6%YoY and to substantial fall in retention prices possibly due to higher discounts offered to distributors and failure to pass over enhanced FED (+25%YoY) to customers amid intense competition in the North region.

Cost structure of the Company deteriorated by 14%YoY (avg. cost/bag 1QFY20: PKR 276, 1QFY19: PKR 241), largely due to impacts of PKR devaluation, imposition of strict axle load restrictions and administrative hikes in energy prices in the country.

The decline in retention prices and improved cost structure led to a meagre gross profit of PKR 123mn as against a notable gross profit of PKR 862mn in the comparative period.

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