<div>
<ul>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i> <a href="#interestratecycle">Macroeconomic Profile a>li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i> <a href="#SPB">Company Profile:a>li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i> <a href="#Financial">Financial Analysis: a>li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i> <a href="#Business">Business and Management Analysis:a>li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i> <a href="#Strength">Strength and Weakness:a>li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i> <a href="#Summary">Summary:a>li>
ul>
<h2>
Macroeconomic Profile:h2>
<p>
Pakistan’s macroeconomic conditions deteriorated during 1st half of Y23 despite policy induced improvement in external current account and primary fiscal balance. Add to those adverse global economic conditions, uncertainty surrounding the completion of IMF program’s 9th review, insufficient external financing and low level of FX reserves remained major concerns during H1-FY23 which were exacerbated by the fallout of flash floods and political instability.p>
<p>
Specifically, both agriculture production and large-scale manufacturing (LSM) contracted; whereas, headline inflation rose to multi-decade high level. The national consumer price index (NCPI) inflation pushed to 25.0 percent during H1-FY23 as compared to 9.8 percent in the same period last year.p>
<p>
Looking ahead, the future of the cement industry in Pakistan appears promising. The government's focus on infrastructure development, including the construction of dams, highways, and housing projects, is expected to drive demand for cement in the coming years. In addition, the next phase of the ChinaPakistan Economic Corridor project is likely to create new opportunities for the cement industry as it involves the construction of ports, railways, and highways.p>
<p>
The cement industry in Pakistan is expected to grow at a compound annual growth rate CAGR of 8.9% during the period 2020-2025.p>
<ol>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Oil pricesb> in Pakistan are on the rise as the government is reducing subsidies. The Russian oil has been procured at discounted price could not stop the upward movement of oil prices. The increase in prices of oil in international market will further put pressure on local prices. Outlook: NEGATIVEli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Interest rates:b> are still high at 23% level due to high inflation. The investing activities is negatively affected due to high borrowing rates. Outlook: NEGATIVEli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>PKR/USD:b>US dollar’s appreciation against a basket of global currencies, led to PKR depreciation during H1-FY23. Outlook:NEGATIVEli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>PKR/USD:b>Workers’ remittances also declined during H1-FY23. The decline in exports and remittances was more than offset by a much larger fall in imports during H1-FY23, leading to a notable decline in current account deficit (CAD). Outlook:POSITIVEli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Fiscal account:b>Fiscal deficit remained at last year’s level, in terms of GDP, because of a sharp expansion in interest payments. Government has target to bring it down to 7%. Outlook:Positive/ Nuetralli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Central bank reserves:b>Despite this improvement in CAD, the dearth of financial inflows led to significant decline in FX reserves during H1-FY23. Situation could improve after the announcement of IMF package and release of funds from friendly countries. Outlook:POSITIVEli>
ol>
<h2>
Company Profile:h2>
<p>
Kohat Cement Company Limited was incorporated in 1980 and is one of the leading cement manufacturing companies of Pakistan. It is an ISO 9001-2015 certified company, with an annual capacity of <strong>4.78 million tons of Grey Clinker strong> and 135 thousand tons of White Clinker. The Registered office and the Factory are located at Kohat, whereas the Head Office is located in Lahore. Company is exporting cement mainly to Afghanistan.p>
<h3>
Ongoing Projectsh3>
<p>
<b>Greenfield Cement Production Line, Khushab, Punjabb> – The land acquisition and infrastructure development work is progressing as per schedule whereas import of plant and machinery will be dependent upon the recovery in economic conditions and relaxation of import restrictions.p>
<p>
<b>10 MW Solar Power Plantb> – Project of setting up a 10 MW Solar Power Plant at Company’s plant site Kohat shall play a vital role in reducing energy cost and is expected to be completed by September 2023p>
<h2>
Dependenciesh2>
<p>
Company is distributing cement related products both locally and internationally. Change in the International prices of cement impact the export deliveries.p>
<p>
<img alt="Global Export Dynamics" class="img-responsive" src="<?php echo $base_url; ?>/img/blog/Globalexportdynanics.png" />p>
<p>
Construction activity in the country also influences the demand of cement. Due to high inflation the cost of construction has significantly gone up which has dampened the cement demand.p>
<p>
Cement production is an energy intensive process and thus company is heavily dependent on the energy prices specially prices of coal and fuel in international market. The rise in fuel prices will also increase the transportation cost of moving cement from plant to market.p>
<div class="col-sm-12">
<div class="col-sm-6">
<img alt="COAL" class="img-responsive" src="<?php echo $base_url; ?>/img/blog/CoalUSD/T.png" />
div>
<div class="col-sm-6">
<img alt="Crude Oil" class="img-responsive" src="<?php echo $base_url; ?>/img/blog/CrudeOilwtiusd/bpl.png" />
div>
div>
<p>
The increase in prices of raw materials such as limestone, clay and iron ore which are used to produce cement, has a negative impact on the market prices of cement.p>
<p>
Changes in currency exchange rates can also affect the price of cement. When USD strengthen against PKR, the price of cement may increase locally but become attractive for export.p>
<ul>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i>INTERNATIONAL PRICES OF CEMENTli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i>LOCAL DEMANDli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i>COAL/OIL PRICESli>
<li>
pictureli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i>RAW MATERIALli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i>CURRENCY FLUCTUATIONli>
ul>
<h2>
Financial Analysis:h2>
<h3>
Growth Factors:h3>
<ul>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Revenue Growth:b>Last 5 years CAGR is 20.48% which is above our criteria of 15%.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Operating Profit:b>Last 5 years CAGR is 17.61% which is above our criteria of 15%. In 2020 the operating profit went into negative.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Net Income CAGR:b>Last 5 years CAGR is 10.76% which is average since it falls in 5-15% bracket.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>EPS:b>Last 5 Years CAGR is 5.64% which is Bad since it is on boarder line. EPS declined from 2018 till 2021 and in 2022 it improved by 32% on YoY basis.Badli>
ul>
<h2>
Stability Factors:h2>
<ul>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Operating Margins (%):b> 2022 operating margins were 27.87% which is good as per our criteria of 12% and it has been above 12% in the last 5 years except for 2022.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Net Margins (%):b> Same goes for Net margins (15.87% in 2022) which have been consistently above 12% except for 2020.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b> Tax Ratios:b> Company paid 45% Tax in 2022 which is above corporate tax average of 29%. Since last 3 years average is 31% so it is considered good.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Interest Coverage:b> Last 3 years average is 9.33 and in 2022 it went up to 17 which is good and above our criteria of 5.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Total Debt:b> Although debt of the company is high but it is declining at a slower rate for in the last 3 years. Since company is in a good position to repay it so it considered good.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Debt to Equity Ratio:b> DER in 2022 declined to 0.36 after remaining above 0.5 in last 3 years. So, it is good.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Current Ratio:b> The asset and liabilities ratio of the company in 2022 improved to 1.87. Thus, secured good as per our criteria of 1.5.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Cash Flow from Operation:b> CFO in last two years has been positive. Since last 3 years average is (4.26) is marginally above 5 years average (4.086), so it is still considered good. Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Net Change in Cash:b> NCC in 2022 became negative due to high investing activities. It should be positive as per our criteria. So it is scored bad.Badli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>CCFO vs PAT:b> 2022 CCFO was 20.43B and recorded higher than PAT (13.53B). So it is also considered good as per our criteria.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>NFAT Ratio:b> Since 3 years average NFAT ratio (1.033) is lower than 5 years average (1.136) so it is also given a bad score.Badli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b> ROE (%):b> 3 Years average (10.6) is lower than 5 years average (12.18). It is also put in bad category.Badli>
ul>
<h3>
Valuation Factors:h3>
<ul>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>PE Ratio:b>: Ratios have been lower than 10% in the last 5 year except for 2021 when it climbed to 11.86. So, it is still good as per our criteria.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>PEG Ratio: b>o: In 2022 PEG ratio was 0.03 which is lower than our criteria of 1. So it is good.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b> Earning Yields:b> Average T-bills rate in 2022 was around 15%. Since company posted a 19% yield in 2022 so it is considered good. Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b> Price to Book Value Ratio:b> PB Ratio in 2022 was 0.96 which is lower than our criteria of 1.5 so it is also good. Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Grahams Formula:b> Value in 2022 was 4.99 which is lower than 22.5 so it is also good. Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b> Price to Sales Ratio:b> PS ratio in 2022 was 0.8 lower than our limit of 1.5 so it is also good Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>EV vs EBITDA:b>The net value in 2022 was 3.09 which is lower than our criteria of 10. So, it is also good.Goodli>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Dividend Yield: b> Since company has not paid any dividend for the last 3 years, so it qualifies for a bad score Badli>
ul>
<h3>
Valuation Score:h3>
<h3>
Growth Factors Scoreh3>
<h3>
Stability Factors Scoreh3>
<h3>
Total Score:h3>
<h3>
INTRINSIC VALUE CALCULATION:h3>
<img alt="INTRINSIC VALUE CALCULATION" class="img-responsive" src="<?php echo $base_url; ?>/img/blog/INTRINSICVALUECALCULATION.png" />
<p>
p>
<h2>
CONCLUSION:h2>
<p>
The valuation result shows that company is available at an attractive pricing and if we add Growth factors and Stability factors then it Good comes out to be 74% which shows that it is worth considering.<br />
In addition to that the intrinsic value calculation also gives a margin of safety 50%p>
<h3>
Business and Management Analysis:h3>
<h3>
Business Factors:h3>
<p>
Cement Industry of Pakistan witnessed a decline of 7.8% for the year ended June 30, 2022 in comparison with the prior year, mainly because of a significant dip of 43.6 % in exports mainly attributable to high cost of production coupled with increased sea freights.p>
<h3>
Latest Cement Production Data of Pakistanh3>
<p>
<img alt="Latest Cement Production Data " class="img-responsive" src="<?php echo $base_url; ?>/img/blog/LatestCementProductionDataofPakistan.png" />p>
<h3>
KOHCh3>
<p>
<img alt="Export Dispatches declined" class="img-responsive" src="<?php echo $base_url; ?>/img/blog/localdispatches.png" />p>
<p>
Export Dispatches declined by 44% while local dispatches remain flat.p>
<div class="col-md-12 well">
<p>
<img alt="Production declined" class="img-responsive" src="<?php echo $base_url; ?>/img/blog/cementproduction.png" />p>
<p>
<img alt="Change %" class="img-responsive" src="<?php echo $base_url; ?>/img/blog/earningpershare.png" />p>
<p>
<img alt="PACRA maintains long-term and short-term entity rating " class="img-responsive" src="<?php echo $base_url; ?>/img/blog/cashflow.png" />p>
<ul>
<li>
Production declined by 5% but sales grew by 37% showing a sharp rise in the Cement bag prices in the country due to exorbitantly high prices of coal, electricity and petroleum products.li>
<li>
Super Tax provision @10% of income for FY 2022 amounting to Rs. 859 Million has been charged to income which has reduced net profits of the Company accordingly.li>
<li>
PACRA maintains long-term and short-term entity rating of Kohat Cement at A and A1 respectively with Positive outlook. These ratings denote a low expectation of credit risk and indicate a strong capacity for timely repayment of financial commitments.li>
<li>
Company is heavily invested in Mutual Funds and T-Bills to take advantage of higher interest rates and improve profitability in its balance sheetli>
ul>
<h2>
Management Factors:h2>
<p>
<b>Authorized share capital:b> Ordinary shares of Rs. 10 each <b>(300,000,000)b>p>
<ul>
<li>
<b>ANS Capital (Private)Limited,b> is the holding company of KCCL and owns and controls its 110,482,320 ordinary shares constituting 55% of its total paid up share capital.li>
<li>
<b>Kohat Cement Educational Trust,b> an associated undertaking, holds 152,045 (2021: 152,045), ordinary shares of Rs. 10 each of the Company.li>
<li>
<b>Directors and Executives b> hold 34,321,996 (2021: 34,317,316) and 147,637 (2021: 147,637) respectively, ordinary shares of Rs. 10 each of the Companyli>
<li>
<b>Directors and Executives b> hold 34,321,996 (2021: 34,317,316) and 147,637 (2021: 147,637) respectively, ordinary shares of Rs. 10 each of the Companyli>
ul>
<ul>
<li>
Mutual Funds Holdingsli>
<li>
MIF – 4.5%li>
<li>
ASSF – 6.74%li>
<li>
NISF – 8.7%li>
<li>
ABL-ISF – 5.91%li>
ul>
<h3>
Dividendh3>
<ul>
<li>
Positive Company has not announced dividend in the last 3 Years due to a planned investment to increase its production by setting up a new plant in Khushab. Company has invested free cash in T-Bills and money market to increase profits.li>
<li>
Company has been buying back stocks since the Q2 of 2023 that shows its confidence in the business and future outlook.li>
ul>
<h3>
Strength and Weaknessh3>
<h3>
Strengths:h3>
<ul>
<li>
Well established company involved in cement sector for the last 43 yearsli>
<li>
Experienced management with strong risk and mitigation strategies and action plansli>
<li>
Above average revenue and profit CAGR for the last 5 yearsli>
<li>
Future investment in new plantli>
<li>
Plant Locationli>
ul>
<h3>
Weaknesses:h3>
<ul>
<li>
High Debtli>
<li>
Not paying dividend for the last 3 yearsli>
<li>
Delay in increasing production capacityli>
ul>
<h3>
Summaryh3>
<ul>
<li>
The cement industry is persistently going through tough times as its sales contracted 16.55% in April 2023 largely due to slowdown in the domestic demand although it picked up again in May.li>
<li>
Kohat Cement is a stable company and its earnings have grown significantly by 24.8% per year over the past 5 years.li>
<li>
Company share price is currently trading at 169.08 (35% lower than its peak value of 260).li>
<li>
Currently Pakistan market is in RED zone and Cement sector does not perform well in this zone.li>
ul>
<h1>
Recommendationsh1>
<ul>
<li>
Stock price is high and not a good time to buy.li>
<li>
Keep it on the watch list and could be a good buy at 20% discount on its current price in future.li>
ul>
div>
<ul>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Total Good:b>7li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Total Bad:b>1li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Total Good:b>2li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Average:b>1li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Total Good:b>8li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Bad:b>4li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Good:b>17 (74%)li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Average:b>1li>
<li>
<i aria-hidden="true" class="fa fa-hand-o-right"> i><b>Bad:b>5li>
ul>
div>
