WITH cement exports from the country facing tremendous pressure for last couple of years, Lucky Cement has changed its growth strategy to focus on increasing its ‘share and footprints in the domestic market’.
During the first three quarters of the ongoing financial year to March, its local sales have jumped by around 22pc to 3.88m tonnes against industry average of 17.7pc, pushing its share in the domestic market to 16.2pc from 15.6pc a year ago.
Last year (July 2014-June 2015), its local sales had grown by 7pc against the industry average of 7.9pc.
“Pakistan’s cement exports are on the decline on account of enhanced tariffs on the commodity’s import by countries like South Africa,” one of the firm’s top executives told Dawn.
Moreover, the devaluation of the currencies in importing countries against the dollar had also made Pakistan’s cement exports expensive.
“In the given circumstances we’ve no option but to increase our footprints in the local market to make up for export losses, and grow,” the executive of the country’s largest cement exporter argued.
The country’s overseas cement shipments fell by 11.6pc to 7.19m tonnes last year and are already down by 19pc to 4.41m tonnes during the first nine months of the present year. Lucky Cement saw its exports dip by 4.5pc to 2.37m tonnes last year. Its overseas shipments in the first three quarters of the ongoing year have plunged by over a third to 1.23m tonnes, with its share in the export market plunging to 28pc from 33.7pc.
The decline in exports has depressed the company’s overall market share to 18pc this year from 19.5pc.
The company is quite optimistic about pushing its sales in the local market in future. “With public spending on large infrastructure projects increasing and private housing and commercial construction activity picking pace, we see the industry sales to grow more quickly. The economic and construction activity around the China Pakistan Economic Corridor is expected to provide further impetus to cement sales,” executive said.
The industry sales have grown by 10pc to 28.35m tonnes in the first nine months of this year. Major cement producers have already announced plans to set up new plants to grab the emerging opportunities and increase their market share in the country. Lucky Cement too plans to set up a new plant in Chakwal with production capacity of 2.3m tonnes a year that will create around 1,000 jobs.
“The new plant will help us penetrate the cement market in the central and northern Punjab (where the company has very small presence owing to distance from its Pezu and Karachi factories) and grow our market share in the local market,” the firm’s executive contended. The investment in a new plant at a cost of about $250m is also crucial for the company because its existing factories with a combined production capacity of 7.75m tonnes have already achieved more than 90pc capacity utilisation against industry average of 78pc.
“The company’s insufficient presence in the wealthier parts of Punjab, optimal utilisation of its existing manufacturing capacity and plunging exports are major factors for recording far slower than industry growth rate and decline in its overall market share,” suggested a stock analyst.
Lucky Cement sales grew by 1.4pc to 5.11m tonnes in the first three quarters of the current year compared to 10pc growth registered by the industry. The growth in sales pushed turnover by 1pc to Rs33.48bn, operating profit by 18pc to Rs13.52bn and pretax profit by 18pc to Rs13.4bn.
“We owe higher profits to growth in sales and low fuel prices (which represent more than half of cost of sales), as well as installation of environment-friendly waste heat recovery (WHR) plants at Pezu and Karachi. Our cost of sales has gone down by 6.1pc to Rs17.60bn in nine months of the present year on account of these factors, spiking our margins,” the company executive said.
“We are in the process of acquiring land for our facility in Punjab and expect to start work in the next couple of months,” the company executive said.
The concentration of cement-making plants in the scenic Soan Sakasar valley of Chakwal has already raised concerns about its environmental impact on the ground water and livelihood of the communities living there. But Lucky Cement officials reassured that these concerns were not based on facts.
“Our plant will be located at a distance of around 50km from where the existing cement factories are situated. It is being set up in an area with almost no agriculture activity and will comprise the state-of-the-art European technology having no impact on the environment and the communities,” the company executive said.
Besides, he said, the company had a strong history of investing a substantial part of its profit back into the communities, environment, health and education.
For example, he pointed out, when the firm set up its first manufacturing facility at Pezu, Khyber Pakhtunkhwa, it was just a small town comprising 4,000-4,500 souls with no drinking water, health and education facilities, and jobs. “In contrast, it now is a thriving town of almost 50,000 people having access to clean drinking water, schools, health facilities and jobs because of the work done by our company for the uplift of the area.”
“We are a socially responsible firm, which has invested millions of dollars in new environment-friendly technologies, and earned a huge stock of carbon credits over the years,” the executive added. “Our effort is to improve the environment and not damage it. Investment in environment-friendly technologies also helps us increase our efficiencies, cut costs and increase profits. It’s a win-win situation for everyone.”
Published in Dawn, Business & Finance weekly, March 23rd, 2016