THE cement industry in Pakistan is looking forward to mixed fortunes. While local demand keeps on growing, exports have stagnated.

During the nine months ending March 31 (9MFY15), dispatches within the country grew 8.4pc and clocked in at 20.3m metric tonnes, while exports declined 9.6pc to 5.4m metric tonnes over the corresponding period of the previous year.

The country’s cement exports are falling due to several factors. These include weak demand from the Afghan market, the imposition of anti-dumping duty of as high as 77pc by South Africa on Pakistani cement manufacturers, and the devaluation of regional currencies.

During 9MFY15, Kohat Cement Ltd (KOHC) dispatched 1.3m metric tonnes of cement, down 5.58pc over the previous year. The company reported that the decrease in dispatches was mainly owing to “unauthorised obstruction in mining operations of the company by some local miscreants during December 2014 and January 2015”. However, the matter was ultimately settled.

Cement sector analysts are upbeat on KOHC. “The company delivered higher-than-expected earnings of Rs5.60 per share for the January-March quarter as well as an unexpected cash payout,” commented Mohammad Ali Amin, an analyst at KASB Securities.

However, the positive quarterly earnings surprise was largely owed to a hefty 209pc quarter-on-quarter increase in ‘other income from money market investments’.

Meanwhile, the installation work for a 15MW waste heat recovery power plant (WHRPP), entailing a capital expenditure of Rs2bn, was in process. The company has also decided to add a new cement mill of 105tph at a cost of Rs650m. This would enable the company to operate at a higher utilisation level in the future.

Multiple cement players have recently announced their intention to expand their existing capacities given the visible increase in construction activity — in the form of housing projects, small dams, flyovers etc — across the country

KOHC CEO Aizaz Mansoor Sheikh told Dawn last Thursday that the 15MW WHRPP would go into commission on time and mitigate the rise in electricity costs. The company was also adding to its production capacity and orders for machinery had already been placed with Chinese suppliers, he said. The company was also comfortable with its cash holdings, which were being invested to augment its earnings.

“We are also aggressively investing in land and property, and an investment of Rs1bn has been made to acquire real estate, mainly in Lahore,” Sheikh informed. He added that the company would continue to diversify, make efficient use of its assets and reduce its expenditures to fatten the bottom-line.

Multiple cement players have recently announced their intention to expand their existing capacities given the visible increase in construction activities — in the form of housing projects, small dams, flyovers etc — across the country.

With a cumulative capacity expansion of 6.9m tonnes coming from four companies — Cherat Cement (1m tonnes), DG Khan Cement (2.6m tonnes), Attock Cement (1m tonnes) and Lucky Cement (2.3m tonnes) — the total industrial capacity will increase to 51.5m tonnes.

Nabeel Khursheed, an analyst at Topline Securities, downplayed the risk that some people associated with increased capacity. He said it was the need of the hour and the demand and supply for the industry would eventually come into equilibrium by 2018.

KOHC has paid-up capital Rs1.55bn, with 18.6m shares or 12.06pc of its equity held by the general public. The holding company, ANS Capital (Pvt.) Ltd, owns 85m shares or 55pc of the total equity. With reserves amounting to Rs8.8bn (or six times its paid-up capital), the company has enough liquidity to invest in diverse areas.

The company paid cash dividends of 50pc in FY13 (along with a bonus issue of 20pc), 20pc in FY14 and 90pc in FY15.

KOHC’s total assets amounted to Rs17bn by end-June30. From FY10-15, the company’s sales grew from Rs2bn to Rs11bn. In the same period, the firm’s bottom line went from a red of Rs0.33m to a profit of Rs3.3bn. Its stock closed last Thursday at around Rs211. KOHC was also placed among ‘200 best companies’ in the Asia-Pacific region by Forbes Asia this year, on the basis of its growth and returns.

Analysts say the company’s future is closely tied with that of the industry. Sajjad Hussain, an analyst at BMA Capital, mentioned various infrastructure and power projects, particularly those under the China-Pakistan Economic Corridor framework, as a major demand trigger for the cement sector.

He added that the federal budget also contained a big amount of Rs52bn for the construction of the Dasu Dam. “While no major work has started on the project so far, work is expected to be initiated in the fourth quarter of FY16, given the adequate fiscal space available with the government.”

Published in Dawn, Business & Finance weekly, December 7th, 2015