The company has come a long way with a successful history of mergers, acquisitions and expansions. Its first plant was set up in Hattar with an initial capacity of one million tons per annum. Later in 2002, the plant's capacity was enhanced to 1.2 million tons per annum and two years later, the company set up a 1.8 million tons per annum plant in Chakwal. In 2005, Bestway acquired its third cement plant, Mustehkam Cement following an offering by the Privatization Commission. This plant had an installed capacity of 0.66 million tons and was not operational. Later, Mustehkam's capacity was enhanced to over 1.2 million tons. Bestway then set up its fourth cement plant in Chakwal with a capacity of 1.8 million tons per annum. After acquiring Lafarge, Bestway Cement has a market capacity of over 8 million tons annually.
Bestway has a wide product range including Ordinary Portland Cement, High Early Strength Cement (Stallion), Sulphate Resistant Cement (SRC), innovative tile bond (Xtreme Bond) and grout (Xtreme Grout).
The Bestway group has one of the most diversified portfolios apart from his thriving cement business. The group is involved in banking, wholesale cash & carry business, retail, real estate, food and beverage, & rice milling. The group owns UK's second largest cash & carry chain; is a joint owner of the Pakistan's third largest commercial bank UBL (holding 7.65 percent of shares), and owns one of the biggest rice milling facilities in Pakistan.
Shareholders, acquisitions, investments & efficiency: Though the company recently announced its FY17 financials to the stock exchange, it has not published its annual report for the fiscal year yet (at the time of writing this brief recording). Over 55 percent of the company's shares were owned by Bestway Holdings Limited according to Annual Report in 2016, while 23.65 percent are held by individuals in the public. Another four percent are held by Bestway Foundation, five percent are held by Dawood Parvez who is a Director in the company while four percent of the shares are held by the Chairman, Mohammed Anwar Pervez.
The company went through a successful acquisition process in 2015 when it assumed the management control of Pakcem Limited (formerly Lafarge Pakistan Cement Limited) with a successful bid for 75.86 percent of Lafarge Pakistan's shares at an enterprise value of $329 million. The company acquired another 12.07 percent shares of the company through the public offering process, taking its shareholding in Lafarge Pakistan to 87.93 percent. The plant for Lafarge is located in Chakwal with a capacity to manufacture 2.5 million tons of cement per year.
Moreover, Bestway acquired 50 percent of the issued share capital in Ecocem Pakistan (Private) Limited held by Lafarge Industrial Ecology International for a consideration of Rs 22.4 million during FY16. Ecocem is in the business of sorting, processing and selling solid municipal waste.
To improve efficiency, Bestway has installed waste heat recovery (WHR) plants and coal fired power generation to all of its plant sites. Soon after the takeover of Lafarge, the company decided to set up a WHR at Kallar Kahar with a generation capacity of 12MW to bring up efficiency of that plant as well.
Bestway plans to add another 1.8 million tons of capacity to its mix after shelving the plans to acquire Dewan Cement. This expansion will keep Bestway in the running for the prestigious top spot though it has a natural disadvantage of being located in the north despite a higher demand in that region. (Read our outlook section below).
Operational and financial performance: The revenues for the company grew by 51 percent between FY11 and FY15 increasing capacity utilisation over the years. The company saw a huge jump in revenues during FY16 because it required the new Pakchem plant with boosted capacity. The company's revenues have gone up from Rs 13.3billion in FY11 to Rs 32.69 billion in FY15; jumping up to Rs 45.7 billion in FY16, which is a jump of 40 percent. Comparatively, Lucky cement, the other major leader yielded revenue of Rs 45.2 billion in FY16. The two firms are neck and neck in terms of capacity and top-line.
The acquisition for the company has fared well for Bestway, not only contributing to greater production but a boost in revenues. In the 70 days to 30 June 2015, according to the company's annual report, Pakcem contributed revenue of Rs 2.18 billion and profit of Rs 209.66 million to Bestway's financials. Combined capacity utilisation for FY16 stood 73 percent compared to 70 percent in FY15 with the Farooqia and Hattar plant running at over 85 percent capacity.
By cutting down on costs, the company improved its margins from 22 percent in FY11 to 46 percent in FY16. Power costs were 60 percent of total cost of sales in FY15 which were brought down to 53 percent in FY16.
The company's net margins went up from one percent to 29 percent between FY11 and FY15, but fell down to 26 percent during FY16 likely due to the increase in indirect expenses and taxes. Administrative expenses went up from 2 percent to 5 percent of sales between FY15 and FY16; finance costs went up from 1 percent to 4 percent while taxes went from 7 percent to 11 percent contributing to a meeker net margin. The company's investment in United Bank Limited has been yielding good returns for it as before tax profits for UBL continue to increase.
Snapshot of FY17 and outlook:
Bestway has contributed to its fair share of hype in the cement industry over the past year and not least because of its plans for expansion in the north. The company was supposed to acquire plant and assets of the sick Dewan Cement unit after a competitive bid with other players who had similar interests, but only a few months of announcing that, it bowed out of that potential deal.
The company closed off FY17 with a 13 percent bump in its top-line and an equilateral increase to its bottom-line clocking profits year-end of Rs 13 billion. The company has been giving price discounts on sales (about 3 percent of gross turnover) that may have worked to boost sales but ultimately affected margins. The fluctuations in the cost of coal imports may have also contributed to squeezing margin, which is a common trend across the cement industry.
During FY17, the company kept a tighter fist on indirect expenses that remained 10 percent of revenues, the same as FY16. Finance cost fell but once the expansion is commissioned, it will likely be financed by debt. This capacity enhancement would place Bestway somewhere in the top over the next few years, but second to Lucky that is undergoing more than one expansion.
Being in the north, the company also does not enjoy from the geographic advantage that some cement manufactures may do in the South as they are near the port. However, the north market is a booming market with much of the local cement demand expected to come from there. In fact, a lot of south players supply cement to the north because existing players there cannot meet the burgeoning demand.
Bestway has a lot going for it though. It is currently leading the pack of cement manufacturers all clamoring to move up the ladder, with one of the highest market capitalisation and bottom lines. It has investments in UBL and it has been attempting to improve efficiencies of its existing plants through WHRs to improve margins.
To double down on costs, Bestway also signed an MOU with Pakistan Railways for the transportation of coal from Port Qasim-with about 14,000 tons of coal moving from Bin Qasim to Hattar and about 6,000 tons to Pind Dadan Khan.
Its only problem remains its lack of control of its rising cost of production which are dependent on international price fluctuations of coal and other inputs; and the exchange rate, which if adjusted would make these imports more expensive. Moreover, the company has been giving price discounts, which should not be a common practice as such measures affect the bottom-line, even if they boost revenues.
Its new expansion would place it still among the top brass of cement manufacturers with Lucky taking the lead over the coming years. If the company doubles down further on costs, it could too improve its margins. With such a strong balance sheet, and a solid presence and marketability of the Bestway brand, the company is well-placed to capture the rising demand.
Exports will remain the Achilles heel for cement manufacturers as none of the markets (Afghanistan, South Africa, even India) are expected to bring on higher demand. An adjustment in sales mix has been on the cards for most cement suppliers as they don't want to take price cuts in exporting markets, but when expansions come through and exports continue to slide, this adjustment may not materialize. Falling exports will remain a threat for the cement industry even if sector players don't acknowledge it now.
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Bestway Cement FY17
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Rs (mn) FY17 FY16 YoY
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Sales 51,523 45,721 13%
Cost of Sales 29,091 24,573 18%
Gross Profit 22,433 21,148 6%
Distribution cost 1,559 1,177 32%
Administrative cost 2,405 2,464 -2%
Other operating expenses 1,230 891 38%
Other income 100 173 -42%
Finance cost 831 1,823 -54%
Profit before taxation 18,664 17,078 9%
Taxation 5,372 5,198 3%
Net profit for the period 13,293 11,880 12%
Earnings per share (Rs) 22.3 20.2 11%
GP margin 44% 46%
NP margin 26% 26%
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Source: PSX
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Prominent shareholding (as at June 2016) Shares %
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Bestway Holdings Limited 320,667,055 55%
Bestway Foundation 23,323,432 4%
Dawood Parvez- Director 28,188,568 5%
Mohammed Anwar Pervez- Chairman 21,640,779 4%
General Public 137,032,652 23.65%
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Source: Company accounts
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Production, Capacity & Utilization
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FY16 FY15
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Hattar
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Capacity 1,170,000 1,170,000
Production 944,860 982,588
Utilization 81% 84%
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Farooqia
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Capacity 1,035,000 1,035,000
Production 914,719 802,324
Utilization 88% 78%
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Chakwal
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Capacity 3,428,571 3,428,571
Production 2,446,909 2,258,722
Utilization 71% 66%
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PakChem*
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Capacity 2,367,090 475,358
Production 1,516,892 251,101
Utilization 64% 53%
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--Nos. for Pakchem FY15 are for btw April- June 2015
Source: Company accounts
Copyright Business Recorder, 2017