Bestway Cement Limited, the country’s largest cement plant by capacity, had entered into a non-binding memorandum of understanding with Dewan Cement Limited for the proposed acquisition of its north plant, including land, production facility and mining leases/licences on Feb 23 this year.

Bestway, which had outbid several contestants, including Lucky, Kohat and Fecto cement companies, later made the surprise announcement that it was stepping out of the acquisition deal.

“As a result of delays and uncertainty resulting from recent legal proceedings initiated in the Sindh High Court, Bestway Cement Limited (BCL) has decided not to proceed with the acquisition of the North Plant of Dewan Cement Limited (DCL) located at Kamilpur, near Haripur, Khyber Pakhtunkhwa”, BCL said in a statement filed with the Pakistan Stock Exchange.

For investors it was a major setback as most were looking at the cash-rich group to bail the company out of its financial troubles.

For investors, Bestway’s decision was a major setback as most were looking at the cash-rich group to bail the company out of its financial troubles

According to the latest accounts for March 31, total assets of DCL stood at Rs26.7bn in which ‘assets held for sale’ were of the biggest sum of Rs9.98 billion. The management explained that those comprise the assets related to the company’s north plant, which was still up for grabs for a prospective buyer.

DCL, a Yousuf Dewan company, has fallen upon bad times. Dewan Cement itself emerged on the scene through the acquisition of Pakland Cement Limited and Saadi Cement Limited, which have a combined capacity of more than 2.9 million tonnes per annum.

The plant of what was formerly Pakland is located in district Malir, Karachi, with a production capacity of 5,700TPD while the Saadi Cement plant in Kamilpur, near Hattar in Khyber Pakhtunkhwa, has a capacity to produce 3,800TPD.

Chairman DCL, Dewan Mohammad Yousuf Farooqui stated in the quarterly report for March 2017, released at the fag end of April: “Mega projects such as CPEC and Public Sector Development Programme (PSDP), along with private housing projects, will provide double digit growth to the local cement industry in the medium term. Housing loans have gone up by 14pc and the housing mortgage finance market has a huge potential”.

The company head, however, conceded that exports would remain subdued but hoped that it would be offset by an upsurge in local sales.

For the financial year 2017, up to March 31, DCL logged in net profit at Rs964m, representing growth of 150pc over a net profit at Rs386m in the same time last year.

Local sales of cement surged 11.6pc to 1.43m tonnes, from 1.28m tonnes, while exports grew by 4.54pc to 0.155m tonnes from 0.148m tonnes year-on-year (YoY). Net sales improved 6.14pc to Rs9.84bn up to March 2017, from Rs9.27bn YoY.

The company recorded clinker production at 1.41m tonnes, representing growth of 5.97pc over the output at 1.33m in the same period last year. Cement production increased 7.68pc to 1.53m tonnes from 1.42m tonnes.

Paid-up capital of the company on March 31 amounted to Rs4.84bn in 484m shares of Rs10 each. At the market, DCL stock currently trades at around Rs23.

In regard to the ‘going concern concept’, the management explained that the liquidity crunch faced by the company was due to the fact that banks/financial institutions did not give due committed support to the organisation for completion of its line II project in the south.

“However, the management is of the view that operating cash flows of the company are and will remain positive on account of expected increase in demand of cement and positive margins on account of increasing trend in cement prices”, directors asserted.

They stated that the company was able to reach settlements with certain lenders and the restructuring of the remaining company debt was in an advanced stage as during the period (to March 3), standstill agreements provided by the steering committee of the bank, had been executed with majority of the lenders.

“The company is in process of selling its north plant and its proceeds will be utilised to repay lender liabilities”, directors said in notes to the accounts.

Overall, the Pakistan cement industry appeared to portray a mixed near-term future outlook —dependent on the market’s ability to absorb the upcoming huge output from ongoing expansions.

Early last month cement companies announced financial results for the third-quarter financial year 2017 (3QFY17).

Nabeel Khursheed, analyst at Topline Securities commented: “Pakistan’s cement sector profitability grew by 5pc over the same period last year (YoY).

Aggregate sales of all listed companies combined were up 7pc during the quarter due to high margin local sales as private sector spending and infrastructure projects under CPEC continue to drive domestic demand”.

Local sales rose 11pc YoY to 9.7m tonnes. Although pre-tax profits were down 2pc YoY in 3QFY17, lower effective tax rate led to 5pc increase in net earnings. The analyst attributed the decrease in pre-tax profits in 3QFY17 mainly to a hike in coal prices.

Published in Dawn, The Business and Finance Weekly, June 5th, 2017