The company was established back in 1982, by the Government of Pakistan; as a part of the State Cement Corporation. Its plant was commissioned in the same year. The company was also provided a long-term agreement with the Pakistan Steel Mills, for the procurement of slag from the latter. According to the initial feasibility study carried out before the setting up of the factory; its immediate vicinity holds plentiful reserves of limestone, gypsum and other inputs, for continuous production over more than 100 years.
The plant is located on the outskirts of Thatta city, along the Sajawal Bypass. It is about 120 kilometers east of Karachi. The company was privatised in February 2004. When the company was privatised, it was acquired by a consortium led by Arif Habib Limited. Among the company's land holdings are; 3,600 acres of limestone quarries, 2361 acres of shale area. The plant along with adjoining housing colonies for workers and officers, the captive power plant and other auxiliary services span over 236 acres.
The company's captive power plant produces 23 megawatts of electricity. TCCL uses about 10MW of this supply while the rest is provided to the National Grid. The power plant was commissioned in 2012 and comprises of seven Genbacher engines. While the power plant can be fired on multiple fuel sources, the factory itself is reliant on natural gas. TCCL receives 9 MMCFD of natural gas supply for its operations.
The company's workforce includes about 700 team members. Of these, about 350 workers are employed in core functions; while the rest are made up of management and workers deployed in support functions.
Manufacturing capabilities The cement industry is typically dominated by companies that have attained economies of scale. As Thatta Cement is the smallest cement manufacturer in the country, its relatively low capacity may be considered a key weakness for this enterprise. However, the company enjoys a few key advantages that enable it to maintain a vibrant market presence and relatively secured positioning.
Foremost, the company is distinguishable by the quality of cement it produces. Thanks to the geographical position and chemical composition of its quarrying sites, the company's produces lo alkali cements. Lo alkali cement is better suited for those construction sites that are prone to alkali reactive materials. Its quarries contain soft reserves; whose excavation requires relatively less blasting.
The nature and size of its plant allows greater flexibility. In turn, this means that the company is able to process customised orders much faster than most other industry players; sometimes even within the same day. The location of the plant is also advantageous in curtailing the cost of inputs; particularly imported coal as it is accessible from Karachi port.
Unlike the North region, cement manufacturers in the South are much more geographically dispersed. For this reason, Thatta Cement and other manufacturers in the South are able to concentrate domestic sales within their respective geographic proximities.
Product range The smallest cement manufacturer of the country is the maker of the largest product line available domestically. Besides the Ordinary Portland and White cement varieties that are common to all other domestic manufacturers; the company also produces three novelty products.
Portland Blast Furnace: is a product which produces low heat of hydration when used in mass concreting. This product also has chloride and sulphate resistant properties that enhance durability. It has a slower strength gain rate in early stages but over the long term, this product provides greater strength than OPC variety.
Ground Granulated Blast Furnace Slag: this by-product of steel manufacturing is procured by Thatta Cement from the Pakistan Steel Mills under a long-term contract. The company provides this product for many large infrastructure projects such as dams, bridges and highways. The product is shipped in finished form and also as slag to users in the North region as well as overseas.
Oil Well Cement: all verities of cement are prepared based on localised specifications. However, oil well cement is manufactured at universal specifications as delineated by the American Petroleum Institute (API). TCCL is the only company in the country to produce this product, at API standard.
Recent operational performance In the fourth quarter of the recently concluded fiscal, TCCL implemented a number of steps for upgrading its manufacturing facilities. The details of these upgrades reveal that the majority of these measures are aimed at improving the efficiency of the plant and to enhance flexibility to use alternative fuels. The modification of clinker transport system and the addition of a new rotary packing system will help speed up the bagging process at the end of the manufacturing cycle.
The management information system (MIS) has also been upgraded to the latest levels as compared to the domestic industry. The company now boasts close to 3000 input/output indicators. This means that the central control room of the facility is automated and able to control plant processes from a centralised location. The conventional testing facilities were earlier augmented with X-ray technology which cuts down sample testing times from many hours to a few minutes.
Prior to these initiatives, the company installed a captive power plant which began to generate electricity in December 2012. Thereafter, various plant equipments have been added, including a recently upgraded automated loading facility for dispatches. The financial impact of these measures as well as the gains reaped from each, are visible in the company's financial performance over recent years.
Financial performance In the past five fiscals, the composition of cement dispatches has changed significantly for Thatta Cement. The proportion of exports in total dispatches has declined gradually while the share of domestic sales continues to climb. This trend is not exclusive to the company as the country's cement sector has seen export markets dry up in recent years due to stiff competition from India, Iran and other cement producers that have relative scale.
Pakistani exports to some countries have also faced hurdles off late, in the form of anti-dumping duties in some markets. That said, the demand in the domestic market has continued to register up ticks which has encouraged companies such as Thatta Cement to concentrate their efforts in markets within close proximity. The benefits of this strategy permeate to the income statement, as shall be detailed subsequently. Although capacity utilisation has fluctuated in the past two fiscals, now that BMR at the factory has concluded, the company may see higher utilisation in FY16.
Despite the swing in dispatches, the company's sales have registered a mostly positive trend. However, the real benefit has come in costs. Over the past five years, the international prices of coal have trended consistently lower from the peak of FY10. In tandem with this trend, Thatta Cement has seen its gross margins climb. As this weakness is expected to continue in international commodities, the company should continue to enjoy the use of relatively cheaper inputs (similar to rest of the industry) in FY16.
Energy costs did rise significantly during the period under review. However, the captive power plant installed at the factory site has played a key role in helping the company mitigate this cost better than those industry players that are dependent on the national grid.
Lower fuel costs have not just aided the cost of goods sold; it has also made a dent in the distribution expenses. Increased focus on domestic dispatches, lower fuel costs and efforts to improve efficiencies in these business operations has helped the company drive down distribution costs by a hefty margin. As a proportion of the top line, distribution expenses have dropped from 12 percent in FY11, to less than two percent in FY15.
Over the past two years, the discount rate in the country has been slashed multiple times by the State Bank of Pakistan. This dovish monetary stance has led to a reduction in the finance cost for Thatta Cement.
The support from exogenous factors has combined with the company's own efforts to improve efficiencies. Resultantly, the company's bottom line has turned green since FY13. After reporting encouraging earnings in FY13 and FY14; the company also issued a cash dividend of Rs 1.3 per share, to add to the joys of its investors.
Going forward, the prospects for the domestic cement industry in general and for Thatta Cement in particular; are widely considered positive. Recent developments such as the China-Pakistan Economic Corridor, government's envisioned projects as well as heightened construction activity in the private sector are all expected to keep demand firm. On the other hand, international commodity prices are not expected to post any sharp recoveries in coming months. Given this context, the company appears well footed to reap the rewards from its efforts in the previous fiscals.
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THATTA CEMENT
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Rs (In millions) FY11 FY12 FY13 FY14 FY15
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Net sales 1855 2314 2361 2182 2304
Cost of sales 1616 2064 1876 1500 1659
Gross profit 239 250 486 682 646
Gross margin 13% 11% 21% 31% 28%
Distribution costs 225 108 66 58 38
Administrative costs 52 70 68 80 95
Other operating expenses 6 3 36 85 72
Finance cost 79 96 83 56 71
NPAT -74 -44 148 298 289
Net margin -4% -2% 6% 14% 13%
EPS (In Rs) -0.93 -0.44 1.49 2.9 2.99
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Source: KSE notice
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