Cement demand increased by 13pc in Pakistan
Pakistan Times Business & Commerce Desk

KARACHI: The growth demand for cement within the country registered 13 percent increase during the first eleven months of the prevailing fiscal (July – May 2006) which comes to the total demand at 15.18million tons, as compared to 13.40million tons during the corresponding period of last year.

On the exportffront, the demand for cement was however 5% lower at 1.36million tons. Consequently, total industry cement dispatches stood 11% higher at 16.54m tons. Overall, the higher demand figures have resulted from improved housing and construction activities in the country.

The cement sector’s earnings are expected to depict a sanguine picture. In this context, Pioneer Cement is a notable scrip. The company’s full year 2006 earnings are projected to depict 98% upsurge on the back of higher sales and firm gross margins. Net income for FY06 is expected at Rs658m (EPS: Rs4.05) as against Rs332m (EPS: Rs2.04) during the preceding year.

Margins are to be supported on the successive increases in cement prices during the year. The outlook for cement demand going forward represents a strong picture on the back of 52% higher PSDP allocation for the year 2006-07 at Rs415bn.

This is expected to act as a stimulus for cement demand ensuing from increased construction activities and infrastructure and water reservoir development projects. We suggest a positive stance on Pioneer Cement.

Pioneer Cement’s earnings for the first nine months of FY06 stood at Rs500m, 120% higher compared to Rs227m last year. EPS amounted to Rs3.08 as against Rs1.40 during the corresponding period of FY05. Overall revenues were up 65% to Rs2,175m with relatively lower growth in cost of sales at Rs1,291m.

This was primarily due to the impact of higher cement prices coupled with operational efficiencies of the company. Consequently, gross margins depicted 8pps increment to 41%. Pioneer Cement’s July – March 2006 sales volumes were up 26% to 0.599m tons compared to 0.476m tons previously. Local sales were up nearly 25% to 0.494m tons while exports also increased by 26% to 0.105m tons.

The capacity utilization of the company during the period stood at 108%. Other operating income increased massively by Rs78m to Rs80m as against only Rs2m previously. Operating expenses and other charges were respectively higher by 62% and 108%.

Financial charges of the company also increased by 45% to Rs123m as against Rs85m previously. Profit before taxation depicted 389% increment to Rs702m compared to Rs269m previously. However, as last year’s bottom-line was boosted on the back of deferred tax adjustment, the higher base effect limited the improvement in the July – March 2006 after-tax earnings to 120%.

Pioneer cement is amongst the few companies in the industry that will reap the benefits of pursuing early and timely expansions. During the last fiscal, Pioneer cement has completed an optimization plan of its existing production line, which ultimately enhanced the production capacity of the company to 2,470 tons per day from 2,100 tons per day previously.

In addition to this, the company has also expanded its production capacity by establishing a new production line at 4,300 tons per day. This expansion has ultimately enhanced the overall production capacity of the company to 7,000 tons per day or approx. 2.0m tons per annum.●