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That construction across the industry is significantly constrained is not quite reflecting in the financial statement of cement companies. Kohat Cement (PSX: KOHC) may be the prime example whose profitability in the latest quarter (Q2) improved 14 percent; up 25 percent in the first quarter of the fiscal year compared to the same period last year. Granted last year, the industry was grappling with the aftermath of floods, reduced development spending and high inflation that caused many private projects to get delayed.

But on the demand front, not a lot has changed. Specially, when it comes to reduced buying power. Though in 1QFY24, the industry reported an increase in domestic demand offtake of 18 percent, by the first half of the fiscal year, local offtake across industry reported a cumulative increase of only 1 percent. Exports in fact, have been making up for much of the lost demand that cement players would ideally be making from home ground. Kohat’s 2QFY24 revenue decline of 5 percent shows this plenty. Winter weakened demand.

On the upside, continued pricing power has ensured that revenues will not fall far enough, meanwhile, coal costs have remained controlled as companies have made use of a variety of coal sources to minimize their coal expenditure. Compared to last year though, Kohat’s margins dropped slightly to 26 percent in 2QFY24, compared to 27 percent in the same period last year. Kohat hasn’t reported its offtake numbers but the reduction in margin is likely due to a combination of retention and costs. Higher reliance on the grid may have tilted costs unexpectedly upwards while axle load regulations have likely also hiked up costs compared to the relative increase in prices in the past year.

Kohat is not a new player on the block though. The company is keeping its overheads at 2 percent of revenue and prudent investments facilitated an “other income” sufficient enough to buttress the bottom-line. In 2QFY24, other income was 36 percent of the pre-tax earnings which is significant and has aided in the company’s ultimate earnings growth. Kohat is not making eye-watering profits at the moment, but it is also not struggling which is a win given the economic quagmire the country is in.

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