Maple Leaf Cement is diversifying into the Pakistan fertiliser business

Maple Leaf Cement Factory Ltd (MLCF) has entered the lucrative Pakistani fertiliser business. According to the company’s notification to the Pakistan Stock Exchange (PSX) on 29 July, MLCF plans to enter the sector through the acquisition of additional shares and control of Agritech Ltd (AGL), a fertiliser plant located north of Mianwali City in Punjab that produces and sells urea and granulated Single Superphosphate.

According to IMS Research, it is important to note that MLCF, along with its associated company Maple Leaf Capital Ltd (MLCL), already owns 20.6 per cent of the total outstanding shares of AGL.

The analyst at IMS Research cited in the report that we understand MLCF is eyeing an opportunity for a significant turnaround in AGL, by aiming to take over AGL, MLCF is using its management expertise to ensure a turnaround of the company’s profitability. Urea demand in Pakistan has recently exceeded domestic urea production. This incentivises the goernment to maximise the gas supply to AGL to ensure an adequate supply of urea, an important raw material for the agriculture sector in Pakistan.

AGL and MLCFs' plants are located in the Mianwali district of Punjab, and it is understood that some of their employees share the same accommodation facilities. Given the proximity of AGL’s plant with MLCF’s cement plant, potential synergies in human capital and diversification benefits are among the factors that played a role in management’s decision to acquire AGL.

If MLCF can acquire AGL, it will be MLCF’s second venture outside of the cement industry after its investment in the healthcare sector. MLCF announced in September 2023 that it would make an initial investment of PKR4bn (~US$13m at the time) in Novacare Hospitals (targeting consumers of premium healthcare services). The total project cost to set up hospitals in Islamabad is about US$110m.

The above announcement highlights a growing trend in the cement industry to diversify outside its core business, given the outlook for weak demand (industry capacity utilisation in FY24 was only about 52 per cent). Lucky Cement derives only 32 per cent of its revenues from the cement business. DG Khan Cement has multiple investments across industries such as dairy, textile, and financial services.