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Thatta Cement Company Limited (PSX: THCCL) was set up in 1980 as a public limited company. It manufactures and markets cement, with a production facility located at Thatta in the province of Sindh that has an annual installed clinker capacity of 548,400 tons.

Shareholding pattern

As at June 30, 2020, Thatta Cement Company Limited is primarily owned by its associated companies, undertakings, and related parties, with over 51 percent shares held under this category. Of this, Sky Pak Holding (Private) Limited owns 21.21 percent followed by Al-Miftah Holding (Private) Limited owning almost 15 percent of the shares. Some 25 percent shares are with the local general public, and close to 12 percent in banks, DFIs, NBFIs. The directors, CEO, their spouses, and minor children hold less than 1 percent share in the company. The remaining 12 percent shares are with the rest of the shareholder categories.

Historical operational performance

Thatta Cement has mostly seen a rising topline with the exception of a few years, while profitability has followed a downward trend after reaching a peak in FY16.

While the cement industry grew by 3.7 percent during FY17, the company’s topline registered a 28.5 percent increase in its revenue; total dispatches for Thatta Cement also saw a rise of 35.8 percent. Local dispatches of both, cement and clinker increased. Cement industry’s growth was primarily hampered by lower exports that were down by more than 20 percent. Cost of production was very slightly higher at 68.2 percent of revenue; this kept gross margin relatively flat year on year. However, net margin was down to nearly 16 percent due to a much higher tax expense; the latter was the highest seen in more than a decade in absolute terms.

In FY18, the company saw the biggest contraction in its revenue thus far, by 22 percent. On the other hand, cement industry’s growth stood at 13.84 percent, with higher consumption seen in both the southern and northern markets. Despite this, total dispatches were lower due to price competition. For Thatta Cement, total dispatches were lower by almost 28 percent, with zero cement exports, and clinker sales nearly disappearing- 15,046 metric tons in FY18 compared to 138,597 metric tons in FY17. This was coupled with cost of production increasing to 73.4 percent of revenue due to higher coal prices, bringing down gross margin to 26.6 percent. With other income further reducing, net margin was further reduced to 12.6 percent for the year.

Cement industry’s growth declined by 1.98 percent during FY19, despite exports growing by 37.7 percent. For the company topline saw a 22 percent increase, while total dispatches were higher by almost 34 percent. Of this cement sales actually decreased due to price competition, which was in turn a result of excess capacity, whereas clinker sales grew from 15,046 metric tons in FY18 to 188,890 metric tons in FY19. Cost of production increased to nearly 81 percent of revenue owing to higher coal prices, packing material prices and other input costs. This was further exacerbated by currency devaluation against USD. Therefore, gross margin shrunk to a little over 19 percent while distribution cost made up 6 percent of revenue due to export related expenses. Thus, net margin was recorded at 6 percent for the year.

The 2 percent growth in the cement industry’s overall dispatches during FY20 was mostly due to export dispatches that grew from 6.54 million tons to 7.85 million tons. There was a slowdown in the construction activities during the year due to stricter policies and procedures and tax reforms by the government. As a result, demand was also low. This was further worsened by the Covid-19 pandemic that led to a lockdown in the last quarter of FY20. Similar trend was also seen in company’s volumes, that fell by almost 50 percent. Revenue also nearly halved year on year. Therefore, cost of production as a percentage of revenue rose to 97 percent, eventually leading the company to post a loss of Rs 158 million- the highest seen in a decade.

Quarterly results and future outlook

As economic activities resumed after the lockdown imposed in the last quarter of FY20, demand was also generated that helped to gain momentum for the cement industry; local cement dispatches for the industry saw an almost 19 percent growth while export dispatches grew by 35.7 percent. Revenue was 12 percent higher for Thatta Cement during 1QFY21 year on year owing to resumption of activities. However, cost of production was higher as compared to that in 1QFY20 due to rise in prices of packing material, transportation charges, etc. so while gross margin was lower than that seen in the same period last year, net margin was supported by a reduction in finance expense year on year.

The company foresees that while the industry may benefit from the measures taken by the government such as focus on infrastructure development, dams and houses construction, profitability may be kept in check due to higher input prices, inflationary trend in the economy, and selling price reduction due to excess capacities.

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