RIL Company Analysis on Lafarge Holcim Bangladesh PLC
Equity Report on Lafarge Holcim Bangladesh PLC
The size of the cement industry of Bangladesh is $3bn. The production capacity is substantially larger at 79 million tonnes, compared to the country’s current annual cement consumption of 39 million tonnse according to the BCMA (Bangladesh Cement Manufacturers Association). The Compound Annual Growth Rate (CAGR) of almost 11.5% over the last seven years. The per capita cement usage of around 230kg in 2023 which was 187kg in 2018, stated 23% increase in consumption by five years.
Key Driver of the Industry: The large-scale infrastructural and public development projects, industrialization, rapid urbanization, construction of high rise commercial, residential buildings, thriving garment sector, remittances and increasing per capita income, dense population etc. pushed the demand for cement sector to increase.
Lafarge Holcim Bangladesh PLC(LHB) is one of the major player in Bangladesh’s cement industry which previously known as “Lafarge Surma Cement Limited”. With over two decades of operation, the company has significantly contributed to the sector through its substantial investment of US$ 500 million. The 5Y revenue growth (CAGR) of the company is 12.3%. In the last year the company has registered a growth around 20.3% in revenue over the previous year despite of the exchange rate increase and inflation including significant rise in utility cost. With a 7.3% market share and an annual production capacity of 6.6 million metric tons, LHB is well-positioned to capitalize on the growing demand for cement in Bangladesh.
The Lafarge Holcim cement plant in Chhatak, Bangladesh, is a unique cross-border operation. A 17-kilometer overland belt conveyor ensures a continuous supply of limestone to the plant, eliminating disruptions. By producing clinker domestically, the plant saves Bangladesh approximately US$ 45 million annually in foreign exchange.
The company’s impressive market capitalization with BDT65.0 billion (1st in the cement sector and 8th in the MNC) reflects its strong performance and growth prospects within the cement sector. The market cap of LHB’s growth by 28.1% since 2019 to 2024 till date. The dividend payment increase steadily from 2019 to 2020 to 2023.This trend suggests that the company’s financial performance was strong during the initial years, leading to increased dividend payouts.
The consolidated revenue of LHB for the year ended 2023 was BDT 28,388 million which was 20.3% higher than the previous year 2022. Major portion of the revenue comes from the sale of grey cement. In 2023, the grey cement contributed 85.6% in total revenue. On the other hand, consolidated gross profit margin growth was 36.2% in 2023. The YoY net profit growth shows 33.7% which is 19.2% higher than the previous year. The consolidated operating profit was BDT 7,757 million, and the net profit after tax was BDT5,941million.
LHB’s quarterly performance reveals a mixed trajectory. The sharp increase in revenue (11.8%) and profit (41.9%) during Q3’2023 signals a period of strong operational activity. The company experienced significant revenue growth in 2023, but the decline in Q1of 2024 due to sluggish economy activity and demand in the market.
LHB’s profit plummeted by 45% in the Q3’2024 due to a significant decline in sales amidst persisting macro-economic challenges & seasonal affect. The company’s earnings per share (EPS) took a substantial hit, falling from Tk 1.38 to Tk 0.76 during this period. The challenging economic scenario and soaring inflation are cited as primary factors behind the dwindling sales, as consumers are becoming more cautious about spending money on non-essential items.
At the current market price of BDT 55.80 per share, LHB appears undervalued compared to its intrinsic value of BDT94, suggesting a potential upside of 68.5%. This undervaluation provides a significant opportunity for investors, especially if the company successfully navigates its current challenges and benefits from the anticipated expansion in its industry. With potential growth in business due to favorable market conditions, LHB’s future earnings could improve, driving the stock price closer to its intrinsic value. However, investors should consider monitoring the company’s ability to manage its financial risks and capitalize on industry trends effectively.