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Pioneer Cement Limited (PSX: PIOC) was set up in 1986 as a public limited company. The company manufactures and sells cement. Over the years, the company has expanded and as of FY20 has three production lines with a production capacity of 10,000 tons per day on Line 3. The company’s production facility is located in Punjab Province.

Shareholding pattern

As at June 30, 2020, 51 percent of the shares are held under “foreign companies”, and close to 23 percent shares are held under joint stock companies. The local general public owns close to 14 percent, followed by 4.5 percent in modarabas and mutual funds. The directors, CEO, their spouses and minor children own less than 1 percent shares in the company. The remaining 7 percent shares are with the rest of the shareholder categories.

Historical operational performance

After witnessing a period of rising topline between FY11 to FY17, Pioneer Cement saw a falling topline for three consecutive years. Profit margins have also been on a decline after reaching a peak in FY15/FY16.

During FY17, the company’s sales revenue grew by 13.5 percent, whereas the cement industry’s growth rate stood at 3.7 percent with total dispatches for the latter crossing 40 million tons. Total dispatches for the company registered a 23 percent incline. While domestic sales of cement increased year on year, significant revenue was also contributed by clinker sales to domestic cement companies that was absent in the previous year. Cost of production increased marginally to 58 percent, that adversely affected gross margins. However, net margin was supported by increase in other income, making up nearly 5 percent of revenue.

Sales revenue for FY18 saw an almost 5 percent contraction. The cement industry saw a growth of 13.8 percent in volumes while Pioneer Cement’s dispatches reduced by 1.5 percent. This was due to lower sales of clinker due to lower demand. On the other hand, cement dispatches increased in both the domestic and export markets by 8.8 percent and 95.5 percent, respectively. However, cost of production increased significantly to over 72 percent of revenue. This was attributed to a number of reasons such as increase in coal prices in the international market, increase in cost of packing material due to increase in prices of paper internationally, increase in fuel and power cost, coupled with currency depreciation that aggravated the situation. Thus, gross margin reduced to nearly 28 percent, while net margin was further squeezed to 16 percent in the absence of other income.

The cement industry saw a relatively slow growth in cement dispatches in FY19, by a little over 2 percent. This growth was contributed by export dispatches that grew to 6.54 million tons compared to last year’s 4.74 million tons; local dispatches fell by almost 2 percent. Total dispatches for the company were lower at 12 percent. While local clinker sales disappeared entirely, cement sales were also lower in both the domestic and export markets. This resulted in sales revenue contraction by almost 4 percent. Cost of production continued to increase, making up 78 percent of revenue. This was a result of increase in paper prices that increased packing material cost and currency depreciation that offset the impact of declining coal prices. With little to no changes in other factors, except for an escalation in finance expense due to increased borrowings and policy rate, net margin fell to single digits, at 8 percent.

Total dispatches for the cement industry in FY20 increased by 1.98 percent. This was largely supported by increase in export dispatches while the local dispatches grew in the first three quarters, and declined in the last quarter due to the economic slow down- a result of Covid-19 pandemic. For the company, total dispatches registered a 20 percent growth, but sales revenue saw the biggest decline by 35.4 percent. This was due to increase in FED rate and a decrease in net cement price from Rs 6,735 per ton in FY19 to average net price of Rs 5,119 per ton in FY20. The sales revenue could not cover cost of production, due to rise in input prices. Thus, the company incurred a loss of Rs 210 million, the highest seen in absolute terms since FY05.

Quarterly results and future outlook

Revenue more than doubled in 1QFY21 year on year. In addition to improvement in demand after the resumption of activities after the lock down, the company had also completed its new production line that allowed for significant increase in volumes; total dispatches grew from 353,731 tons in 1QFY20 to 699,287 tons in 1QFY21. Average net sale price also improved to Rs 5,709 per ton from Rs 5,289 per ton in September 2019. Operating profit was also supported by other income, however the finance expense owing to borrowing for expansion, increased that crippled net margin to a negative 1 percent. It was better in comparison to a negative net margin of almost 10 percent in 1QFY20.

The company foresees rising demand for cement to continue on the back of tax incentives for the construction industry and Naya Pakistan Housing Scheme.

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