One of the smaller companies of the lot, Thatta cement has witnessed a strong growth trajectory over the past few years. But clearly there is a lot more growth to be had when the company has been running below capacity for a couple of years. The outgoing fiscal year closed off with a 28 percent growth in revenues which is strong in itself, but the burden of heavier taxes doubled down on Thatta resulting in a 5 percent drop in its bottom line. Before tax profits rose by 28 percent.
The company has maintained a tight fist on its indirect expenses—administrative and distribution expenses remained 7 percent of revenues during FY17 while finance costs dropped. It is worth noting that Thatta is one of the few cement players who has diversified its product portfolio.
The company sells ground granulated blast furnace slag (GGBFS) used in blending and as filler in foundations, and Class G Oil Well Cement for which it has certification by the American Petroleum Institute (API).
The Class G cement is used by oil and gas exploration companies and Thatta is the only Pakistani company that can market its product to countries that use this variety of cement for the construction and drilling of oil wells. The diversification could open great doors for Thatta that yet need to be fully explored.
The company ran at 45 percent of capacity in FY15, moving up to 70 percent in FY16—likely similar utilization during FY17 as exports have been falling. To improve plant efficiency, Thatta ran a BMR to improve efficiency by converting the cement production system to pyro process which would likely pay off in the long run.
Thatta’s margins on the other hand have remained at 32 percent, lower than other players. The company is being supplied with electricity through its power subsidiary Thatta Power (TPPL) which should compel energy costs to move down.
Thatta remains one of the few cement players who haven’t announced any plans to embark on an expansion which doesn’t bode well given the sector will bring around 30 million tons online over the next 5-6 years.
This would put pressure market share for most players, most of all those who are keeping put on capacity. However, since the company is not yet running on maximum capacity utilization, the expansion could be superfluous. Some budget should be allocated to marketing activities to reach out to locally accessible locations as well as suppliers in key exporting markets.
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