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Gharibwal Cement Limited (PSX: GWLC) was set up in 1960 as a public limited company. Two years later, it was listed on the stock exchange and in 1965 it began commercial production. It produces and sells cement. As of FY21, it has an annual production capacity of 2,010,000 tons of clinker.

Shareholding pattern

As at June 30, 2021, close to 89 percent shares are held by the directors, CEO, their spouses and minor children. Within this, majority shares are held by the CEO, Mr. Muhammad Tousif Peracha. The local general public owns over 9 percent shares while the remaining 2 percent shares are owned by the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a growing topline with the exception of FY19 and FY20. Profit margins, on the other hand have been declining between FY16 and FY20, before witnessing a sharp increase in FY21.

Revenue in FY18 grew by 4.3 percent. Cement dispatches posted a growth of 18 percent at 1,891,808 tons, while no clinker dispatches were recorded. Additionally, export sales reduced by a whopping 40 percent. On the contrary, local sales were higher by 10 percent, although selling price reduced in the local market. Production cost escalated to almost 75 percent as currency devalued from Rs 105/US$ on June 30, 2017 to Rs 121.60/US$ on June 30, 2018 that increased prices of inputs. Thus, gross margin fell substantially to 25 percent, from last year’s over 34 percent. This also trickled to the net margin that was recorded at 12.9 percent, down from 20.35 percent in FY17.

After growing consistently since FY11, revenue contracted by 4.5 percent in FY19. Cement dispatches reduced by 11.4 percent to 1,675,906 tons. Both export sales and local sales also declined. Export sales were adversely impacted by the political tensions between Pakistan and India since the latter is a major export destination. While volumetrically there was a decline in sales, in value terms it was contained due to a rise in selling price. But with production cost rising to 78 percent of revenue, gross margin fell to 22 percent that also reflected in the net margin. The latter was recorded at 6.6 percent.

In FY20, revenue contracted for the second consecutive period by 22 percent to fall to Rs 8.7 billion in value terms, from last year’s Rs 11 billion. While cement dispatches were lower only marginally by 1 percent, the significant reduction in revenue was due to prices that fell by 21 percent. Volumes were only reduced in months of lock down when the Covid-19 pandemic broke out. Production cost, on the other hand spiked to 99 percent of revenue due to increase in “the rate of royalty on raw materials with effect from July 2019 that increased the respective expense by 161 percent year on year”. Thus, the company posted a loss before tax of Rs 562 million.

In FY21, revenue was higher by nearly 39 percent to cross Rs 12 billion in value terms. There was a 7 percent improvement in volumes, with cement dispatches reaching 1,776,484 tons. With production cost reverting to nearly 74 percent, gross margin also improved to over 26 percent. This was also attributed to an increase in selling prices combined with a reduction in energy prices. The higher gross margin also reflected in the net margin that also increased, to 12.8 percent for the year.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 21.7 percent year on year, while volumes were lower by 8.9 percent. This can be attributed to a rise in selling prices. This also translated into higher profitability as net margin was recorded at 12 percent versus 10 percent in the same period last year.

The second quarter saw revenue higher by over 43 percent year on year. This can again be attributed to an improvement in selling price as volumes for 1HFY22 were lower by 2.7 percent. Production cost also declined as a share in revenue to nearly 65 percent during 2QFY22 that allowed gross margin to improve to 35 percent. This also reflected in the net margin that was recorded at 20 percent for 2QFY22 versus 14.6 percent in 2QFY21.

In the third quarter of FY22, revenue was higher by 28 percent year on year. On the other hand, volumes continued to decline cumulatively for 9MFY22 that were lower by 3.7 percent year on year. Despite the increase in topline, gross margin was lower at 20 percent in 3QFY22 compared to 30 percent in 3QFY21. This was due to a rise in production cost owing to increase in coal, fuel, energy and other input prices. As a result, net margin was also lower at 11 percent in 3QFY22 compared to over 15 percent in 3QFY21. While demand continues to exist, the rising input prices are hurdles for future profitability.


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