AIRLINK 58.23 Decreased By ▼ -0.37 (-0.63%)
BOP 6.24 Increased By ▲ 0.03 (0.48%)
CNERGY 3.97 Decreased By ▼ -0.02 (-0.5%)
DFML 16.07 Increased By ▲ 0.06 (0.37%)
DGKC 67.61 Increased By ▲ 0.29 (0.43%)
FCCL 17.82 Increased By ▲ 0.27 (1.54%)
FFBL 25.40 Decreased By ▼ -0.49 (-1.89%)
FFL 9.15 Increased By ▲ 0.01 (0.11%)
GGL 9.79 Increased By ▲ 0.02 (0.2%)
HBL 113.77 Increased By ▲ 1.27 (1.13%)
HUBC 111.61 Decreased By ▼ -3.68 (-3.19%)
HUMNL 6.55 Decreased By ▼ -0.04 (-0.61%)
KEL 4.39 Increased By ▲ 0.17 (4.03%)
KOSM 4.59 Increased By ▲ 1.03 (28.93%)
MLCF 37.73 Increased By ▲ 0.62 (1.67%)
OGDC 125.21 Increased By ▲ 8.81 (7.57%)
PAEL 22.61 Decreased By ▼ -0.10 (-0.44%)
PIAA 11.10 Increased By ▲ 0.31 (2.87%)
PIBTL 6.17 Decreased By ▼ -0.08 (-1.28%)
PPL 109.07 Increased By ▲ 5.07 (4.88%)
PRL 26.84 Increased By ▲ 0.45 (1.71%)
PTC 10.48 Increased By ▲ 0.95 (9.97%)
SEARL 52.85 Increased By ▲ 0.86 (1.65%)
SNGP 66.38 Increased By ▲ 1.26 (1.93%)
SSGC 11.01 Increased By ▲ 0.08 (0.73%)
TELE 7.13 Decreased By ▼ -0.08 (-1.11%)
TPLP 11.93 Decreased By ▼ -0.06 (-0.5%)
TRG 76.07 Decreased By ▼ -0.78 (-1.01%)
UNITY 20.47 Decreased By ▼ -0.02 (-0.1%)
WTL 1.30 No Change ▼ 0.00 (0%)
BR100 6,426 Increased By 94.3 (1.49%)
BR30 21,976 Increased By 345.9 (1.6%)
KSE100 62,816 Increased By 901.5 (1.46%)
KSE30 21,134 Increased By 282.7 (1.36%)

Last year, outstanding domestic demand dominated the cement industry’s financial performance. This year thus far, it is favourable retention prices and a careful control over costs despite critical cost-push factors that could have ripped the bottom-lines of cement companies. But didn’t.

Here we are looking at two companies with not too dramatic a difference in capacity but fairly different financial outcomes, positive earnings growth notwithstanding. Where the smaller of the two, Cherat Cement (PSX: CHCC) knocked it out of the park with gross margins almost reaching 30 percent and earnings quadrupling from last year, Mapleleaf Cement (PSX: MLCF) displays a measured performance in 1Q; perhaps dull only by comparison with the former.

Mapleleaf’s top-line is stellar despite reduced dispatches during the quarter compared to the quarter last year owing to an increase in retention prices in the domestic markets. On average, cement prices are up 20 percent this quarter compared to 1QFY21. Per ton revenue sold for MLCF is actually up 36 percent. Though actual dispatch numbers for Cherat are not available, estimated numbers suggest a similar top-line performance for the cement player.

Despite higher fuel prices, rupee depreciation and the coal price rally, both companies managed to improve margins substantially from last year as they “managed” their costs through timely procurement of coal, better inventory management, and diverting some of their coal demand to low-cost sources (such as Afghan coal) versus earlier practices. The cement companies have been certainly smart since coal prices have been wreaking havoc since before last quarter and had the foresight to keep contingency plans.

In addition, energy efficiency for these cement plants comes into play where waste heat recovery (WHR) units at plant sites and captive power (in the case of Cherat) contributes to power demand and reduces dependence on the grid. According to MLCF’s quarterly report: its WHR represents one-third of the power mix. These factors have certainly given cement companies an edge on the cost side.

Debt will remain an important concern for both companies as they move into next year due to upcoming expansions and modernization of existing plants. Not to mention, both companies are investing in solar technology to reduce power costs further down the line. The increased debt burden will cause finance costs to increase—with or without the rate hike, though that will continue to play a role. Right now, in 1Q, finance costs as a share of revenue stood at 3 percent and 4 percent for MLCF and CHCC respectively owing to better policy rate. Last year, this was 6 percent and 10 percent, so a dramatic improvement was witnessed here.

In terms of overheads and other costs, Cherat’s 5 percent of revenue is considerably less than MLCF’s 8 percent. The latter’s distribution costs are still growing while operating expenses for both have pushed earnings down. Lower overheads for Cherat certainly gave it the upper leg, but so did “other income” component where 10 percent of the company’s before-tax profit actually came from non-business activities.

With coal inventories stashed away for next quarter, upcoming expansions that are set to spread their wings enough to capture more demand, and retention prices moving up in the domestic markets, the future for both companies seems upbeat. Though with exports telling a sobering tale, local demand must deliver.

Comments

Comments are closed.