Bestway Cement (PSX: BWCL) dominates not only the north zone of the country but also the entire industry in terms of capacity and evidently, revenues flows. Though there isn’t a lot of competition between the two zones but if there were, despite leading in revenues, the company would stall behind Lucky in overall performance. Reason? Location, location, location!

Demand dynamics differ across the two zones. The south zone has utilized its geographic proximity to the port by exporting excess clinker but the north zone does not have many exporting avenues to explore. In the first half of the fiscal year, the north zone was facing a particularly tough time with dying demand and increasing price competition. PSDP funding was slashed, while appetite for commercial projects was reduced as ban on purchase of property was in full effect. That ban was eventually lifted but the economic slump has considerably reduced construction and infrastructure development activities. Meanwhile, exporting to Afghanistan became ever more difficult while India slapped hefty duties on Pakistani exports that resulted in overall north zone taking a nosedive. These dynamics have come into play for most players, some more than others.

Bestway’s one percent growth in the top line speaks to these undercurrents, though the company has managed to keep its market share. Costs are another ball game. Though South African coal prices have come down—they averaged $93 per ton in FY18 and came down to an average of $87 per ton. They fell 33 percent in the Jul-18 to Jun-19 period while they had grown 27 percent last year. But despite lower coal prices, margins reduced as expensive electricity and fuel prices affected margins, while rupee depreciation also put pressure on the cost of imports.

The company’s other expenditures reduced primarily due to lower distribution costs as exports declined. However, finance costs as a share of revenues grew to 3 percent against 1 percent last year owing to higher mark-up paid as SBP tightening monetary policy significantly. Meanwhile, a higher effective tax (24% against 12% last year) ensured that profits slid by a lot more. Despite net margins shrinking by 24 percent, the company gave a final cash dividend of 30 percent in addition to an interim dividend of 80 percent to shareholders.

Against a backdrop of depleting demand, the company will also remain susceptible to exchange rate movements and monetary policy aside from energy inflation. Demand will remain under pressure until the economy resurfaces from its dark clouds. Kicking off of the Naya Pakistan Housing Program may yield some growth in demand, and if successfully implemented, housing construction may help shore up some of the revenues for Bestway. However, price competition amongst north players may undermine some of those gains.