Attock Cement's perceptions for Pakistan's cement industry  

Top officials of Attock Cement Pakistan Ltd (ACPL) presented a pictorial review of Pakistan cement industry in local bourse house on 30 September. Muhammad Rehan, chief financial officer and  Muhammad Irfan Amanulah, senior general manager and company secretary, highlighted the company performance, issues negating to industry's profitability and future outlook.

Cement sales
The sale of cement in Pakistan is likely to remain flat at 47Mt during FY19-20 but may inch up to 49Mt during FY21-22 at a growth rate of five per cent. However, if growth would be at the rate of 7.5 and 10 per cent, total sales would reach to 51Mt and 52Mt, respectively during this period. It is also estimated that by FY26-27, cement sales will increase to 63Mt at a growth rate of five per cent (73Mt at 7.5 per cent and 83Mt at 10 per cent). By that time, Pakistan would need fresh investment from overseas or local investors or existing players to enhance its capacity from 66Mta beyond FY26-27.   

Production capacity
Pakistan's total cement industry capacity stood at 56Mta at the end of FY18-19. It is foreseen that it will increase to 66Mta by FY19-20 due to completion of ongoing expansion by four big players of the country. However, cement capacity would remain at same level during FY20-27, until demand outpace capacity.

There are a number of expansion plans by cement companies, including Power Cement, which aims to add a 2.4Mta line in the south in the 4Q19, while Pioneer expects to bring online a similar line in the south during this period. Lucky Cement plans to add a 2.6Mta plant in the north by the 1Q20 and Kohat Cement envisages the commissioning of a 2.4Mta line in the north the following quarter.

Industry review
During the FY18-19, the local market in the south, where Attock Co is situated, witnessed an exuberant growth of 46 per cent, owing to robust demand in local markets, which increased by 15 per cent as compared to same period last year. In addition, higher exports, which surged 211 per cent YoY, were a further contributing factor.

The government of Pakistan, in its recently promulgated Finance Act of 2019, has taken certain key steps in tax reforms and towards documentation of the economy, which will have a significant impact on supply chain management of movement of commodities. These steps may create an unfavourable impact on demand side of equation in months to come.

Besides, the cement industry is not happy the way the axle load issue has been headed. However, an apex court final decision is awaited. Meanwhile, transportation costs have increased substantially for trucks. The rise in packing material cost is also negatively affecting business.

Outlook
Pakistan's economy has been passing through a very challenging time. With higher interest rates, significant devaluation of PKR against US$ as well as mounting current and fiscal account deficits have presented serious challenges for both the government and businesses.

The government intends to reform the real estate sector in order to widen its tax base and bring the sector into documented economy. This change in policy would impact the investment in real estate and housing sector and demand of construction material including cement may slow down in short to medium term. Furthermore, the higher input costs due to significant change in both exchange rate regime and interest rate scenario would fuel the cost-push inflation.

With new local and regional capacities coming in six months, the excess supply may further aggravate the situation as demand supply equilibrium would tilt in favour of supply. With the closure of Indian cement markets for Pakistani cement, the industry of North may face a serious issue in selling surplus capacity and further influx from the north to the south may not be ruled out.

In the finance budget 2019-20, the government increased the excise duty on cement by PKR500/t and consequently sales tax on MRP has been increased by PKR85/t. In an economic scenario, which is witnessing double-digit inflation, SBP discount rate of 13.25 per cent, significant devaluation of the Rupee coupled with aggressive tax reforms measures undertaken by government and availability of surplus cement capacities it would be a daunting challenge to maintain the profitability in near future.

The recent notification by the government in respect of implementation of axle load limit on motor ways and high ways will also fuel the transportation charges and it is feared that there may be serious shortage of transport besides exorbitant increase in transport rates.

The positive aspect is, however, the recent significant reduction in coal prices, which have started to come down and from as high as US$110 C&F Karachi it has now reduced to US$75 C&F Karachi. The cement industry is now pinning hope with the huge housing scheme of government to be built near economic zones under China Pakistan Economic Corridor (CPEC).

Attock Cement: Financial performance
During FY18-19, Attock Cement earned a net profit after tax of PKR2.073bn (US$13.2m) as compared to PKR4.4bn earned during the corresponding period, showing a decrease of 53 per cent. However, the preceding year was a remarkable year in terms of Attock Cement plant's operations. All the three kiln lines performed exceptionally well and achieved record production of 3.184Mt during the year under review. This is the highest ever production recorded by the company.

The company also achieved record net sales revenue of PKR20.78bn due to higher dispatches of both cement and clinker in the local and export markets. However, due to the higher input costs both the gross and operating margins of the company remained under pressure.

The company sold 2.447Mt of cement in both local and export markets, showing an increase of seven per cent as compared to preceding year. During the year under review, the company sold 1.857Mt (2017-18: 1.826Mt ) of cement in the local market, showing an increase of two per cent and exported 590,195t of cement in the markets of Sri Lanka, India and East and West Africa (2017-18: 462,062t) showing a robust growth of 28 per cent as compared to last year.

On the back of higher production due to commencement of line three operations the company aggressively explored the regional markets of clinker and was able to sell 757,774t of clinker in the markets of Bangladesh, Sri Lanka and East Africa.

Attock Cement – financial performance
During FY18-19, Attock Cement earned a net profit after tax of PKR2.073bn (US$13.2m) as compared to PKR4.4bn earned during the corresponding period, showing a decrease of 53 per cent. However, the preceding year was a remarkable year in terms of Attock Cement plant's operations. All the three kiln lines performed exceptionally well and achieved record production of 3.184Mt during the year under review. This is the highest -ver production recorded by the company.

Attock Cement also achieved a record net sales revenue of PKR20.78bn due to higher dispatches of both cement and clinker in the local and export markets. However, due to the higher input costs both the gross and operating margins of the company remained under pressure.

The company sold 2.447Mt of cement in both local and export markets, showing an increase of seven per cent as compared to preceding year. During the year under review, the company sold 1.857Mt (2017-18: 1.826Mt ) of cement in the local market, showing an increase of two per cent and exported 590,195t of cement in the markets of Sri Lanka, India and east and west Africa (2017-18: 462,062t) showing a robust growth of 28 per cent as compared to last year.

On the back of higher production due to commencement of line three operations the company aggressively explored the regional markets of clinker and was able to sell 757,774t of clinker in the markets of Bangladesh, Sri Lanka and East Africa.