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  • Khayah Cement records significant volume growth amidst challenging business model.
  • Concerns arise over foreign currency exchange losses and financial stability.
  • Analyst advises risk management, diversification, and operational efficiency improvements.

Harare - Khayah Cement formerly Lafarge Cement Zimbabwe Limited, reported a significant increase in cement volumes, with a 117% surge for the six-month period ended 30 June 2023 compared to the same period last year. This growth can be attributed to the successful restoration of the collapsed cement mill roof and the commissioning of the new Vertical Cement Mill (VCM). The company's focus on stabilizing the business has yielded positive results in terms of production capacity.

Despite the impressive volume growth, Khayah Cement faces challenges related to its business model. The company incurred an operating loss of ZWL 378.4 billion, primarily driven by foreign currency exchange losses arising from the revaluation of long-term borrowing. The depreciation of the local currency against the US dollar had a severe impact on the company's financial position. This raises questions about the effectiveness of Khayah Cement's risk management strategies and its ability to navigate volatile economic conditions.

The company's chairman, K. C. Katsande, acknowledged the prevailing uncertainties in the economic environment and the need to maintain adequate working capital. As a result, Khayah Cement has refrained from declaring a dividend, emphasizing the importance of financial stability. It is crucial for the company to address the challenges posed by currency fluctuations and inflation to ensure long-term sustainability.

According to Tinashe Duma, an analyst at Equity Axis, Khayah Cement's business model is susceptible to external factors like foreign currency volatility and inflation. Duma highlights the need for the company to develop robust risk management strategies to mitigate these risks effectively. He also emphasizes the importance of diversifying revenue streams and exploring opportunities beyond the domestic market.

Duma believes that Khayah Cement should focus on enhancing operational efficiencies and cost containment measures. This includes optimizing production processes, streamlining distribution channels, and leveraging technology to improve overall productivity. Additionally, the company should explore partnerships and collaborations to access new markets and reduce reliance on a single currency.

Zimbabwe's housing backlog remains a pressing issue, with a significant demand for affordable housing solutions. While limited disposable income poses a challenge in the economy, the government's efforts in infrastructure development, such as roads and dams construction, present opportunities for Khayah Cement. The company can leverage these initiatives to contribute to the construction sector and address the housing shortage. However, Khayah Cement faces competition not only from local cement producers but also from smuggled cement, which undermines its market share. Moreover, PPC Zimbabwe, a key competitor, continues to pose a strong challenge, intensifying the competition for Khayah Cement's investment and market position. The company will need to navigate these challenges strategically to maintain its foothold in the cement industry and capitalize on the government's infrastructure drive.

While Khayah Cement Limited has achieved remarkable volume growth, its financial performance and business model present challenges for the future. The company needs to address the impact of currency fluctuations and inflation on its operations. By implementing effective risk management strategies, optimizing operations, and exploring new markets, Khayah Cement can position itself for sustainable growth in the long term. As the company navigates the evolving economic landscape, it must prioritize financial stability and adapt its business model accordingly.

-        Equity Axis News