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|06 December, 2018

Raysut Cement's expansion plans to "ease pressures" in the medium to long term, analyst says

Raysut Cement looking to acquire ARM Cement of Kenya for an estimated value of $100 million

Raysut Cement's expansion plans to "ease pressures" in the medium to long term, analyst says

Raysut Cement, Oman’s largest cement manufacturer, is looking to acquire ARM Cement of Kenya, the company confirmed in a press release on Wednesday.

According to the statement, the company has expressed its interest to the administrators of ARM Cement of Kenya, and said its proposed acquisition has a value of around $100 million. ARM Cement is a company which had sales of around 8.7 billion Kenyan shillings ($84.8 million) in 2017, according to filed accounts, but which was placed into administration in August. It has debts of around $140 million, according to Raysut Cement's statement.

“The acquisition will complement Raysut’s revised strategy to manufacture clinker in proximity to the markets it supplies to in East Africa,” the company said.

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Raysut Cement’s chief executive officer had also told India's The Hindu newspaper earlier in the week that the company is in discussions to invest about $700 million in India by 2022. Of this investment, $200 million will be used to acquire majority stakes in two Indian cement producers, the CEO said.

The company's efforts to diversify into new markets are occurring at a time when it has been losing business as a result of the war in neighbouring Yemen.

“In our view, despite the company efforts to explore export markets, the Yemeni situation (Yemen market forms 50% of total exports historically), has offset the majority of any outcome,” Ammar Salim, senior research analyst at Ubhar Capital, told Zawya by email.

The Yemen war started back in 2015 and Raysut Cement has seen disruptions in its exports to the country, resulting from the ongoing civil war.

The company’s nine-month net profit for the year 2018 amounted to 2 million Omani rials ($ 5.2 million), compared to 6.7 million rials a year ago.

Last year, the company reported a net profit attributable to shareholders for 2017 of 6.9 million rials, compared to 20.7 million rials for 2016 - a 66.7 percent decline.

“Yet, in the medium to long term, such investments will ease pressures considering stiff competition in local market and overall growth situation in the region,” Salim added, referring to the slower growth in the Gulf.

“Raysut Cement is (a) relatively low debt company with total debt to equity ratio at 15% as of 9M’18 (first nine months of 2018), enabling the company to raise more funds without impacting the working capital,” Salim said.

The company’s stock was trading at 3.4 percent higher by 10:56 GST on Thursday and Oman’s stock market was mainly flat.

For the year to date, Raysut Cement’s stock price is now down more than 45 percent, underperforming Oman’s stock market which is down 10.79 percent to date.

According to data from Eikon, one analyst has a 'buy' rating on the stock and one analyst has a 'hold' rating.

Elsewhere in the region, Dubai’s index was trading 0.9 percent lower on Thursday, Qatar’s index was 0.14 percent higher, Abu Dhabi’s index was trading 0.17 percent lower, Kuwait’s index was 0.27 percent up and Bahrain’s index was trading 0.13 percent lower.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(Gerard.aoun@refinitiv.com)

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