Pioneer Cement Limited (PSX: PIOC) was set up as a public limited company in 1986. With its plants located in Punjab, the company has three production lines where it manufactures and sells cement. It began its production operation with a capacity of 2000 tons per day. The company also made investments in a 12MW Waste Heat Recovery Power Plant and 24MW Coal Power Plant. As it stands now, Pioneer cement has an installed capacity of 5.19 million tons annually and is operating at a capacity utilization of 52 percent.

Historical operational performance

Since FY07, Pioneer Cement has witnessed a growing topline which in recent years rose even more dramatically. After a downward growth during FY20 and in the aftermath of Covid, the company’s topline has continued to grow year after year. Between FY20 and FY23, revenues are up by a multiple of 5.7x. This was a direct result of the expansion during Fy21 that took its volumes up by 92 percent in just one year. Though production came down in subsequent years, revenues kept growing due to strong retention in the market.

Gross margins during Fy16 and FY17 however were fairly high and began to reduce in recent years–with substantial declines during Fy18 and Fy19 and turning even negative during FY20. The reason was rising fuel and power costs, and currency depreciation as well as movement in international coal prices.

In FY20 in fact, Pioneer saw the biggest contraction in revenue as it fell by over 35 percent. This was despite a 20 percent rise in dispatches. This was due to an increase in FED rate in addition to a reduction in net cement price to an average of Rs 5,119 per ton, compared to Rs 6,735 per ton in FY19. As a result, the company could not cover costs and incurred a gross loss of Rs 103 million. Although other income increased, it could not do much for the bottomline that was recorded at a net loss of Rs 210 million. In Fy21, the company rebounded, especially with increased production. Meanwhile, Fy22 saw growth due to much higher cement prices even when production fell year on year.

In FY23, earnings more than doubled despite dispatching lower volumes. This dramatic improvement in earnings came about due to a combination of factors such as higher retention prices, and lower costs incurred due to rationalized coal prices and usage of alternative sources of coal (such as Afghan and domestic coal). Gross margins improved to 26 percent in FY23 compared to 22 percent in the preceding year. Earnings growth was tremendous despite record high interest rates that increased finance costs.

Future outlook

In the latest quarter (2QFY24), Pioneer is doing pretty well even when demand has been absent in the markets. Volumetric growth is not there across the industry but very strong pricing power has enabled profitability of most cement companies, including Pioneer. The company gave a dividend payout to its shareholders after many quarters signaling confidence that the company is performing.

Though the topline in 2Q declined by 2 percent year on year, cost optimization and strong pricing whilst cutting down on expenses allowed the company’s gross margins and net margins to soar. In 2QFY22, the company’s margins stood at 27 percent which rose to 35 percent. The company has also been cutting down on expenses–finance costs as a share of revenue came down to 6 percent from 11 percent in 1QFY24 and from 8 percent in 2QFY23. Early loan resettlements enabled the pressure off the finance costs. Overheads are paltry–at roughly 1 percent of revenue.

With such lean living, the company has a lot to celebrate, even if volumes are simply not there. They will eventually come, though not fast enough. Once the economy rebounds, cement demand will as well as government and private sector will once again spend on construction. Cement companies should hope until such a time comes, coal remains affordable and accessible through multiple sources, and they continue to hold pricing power in the domestic markets.


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