PIOC: Good times!

As earlier opined, cement companies seem to be headed in the same direction when it comes to financial performance irrespective of the size of their balance sheets (a comparison between big and small companies’ performances can be found here: Bestway and Thatta mirror performances”, Sep 21, 2021. “DGKC, CHCC and FLNG”, Sep 23, 2021). Pioneer Cement (PSX: PIOC), one of the last companies to report its annual financials is no different delivering a strong top-line and a massive turnaround in earnings.

Like other companies operating in the north, Pioneer supplies mainly to markets nearby in the north with demand being fed through infrastructure projects currently underway funded primarily by the government. The company sold nearly double the dispatches during FY21 with exports taking a minuscule share in the company’s dispatches. Last year, Pioneer started a new line operation that considerably expanded its capacity allowing it to capture a greater share in the market than was earlier possible. The expansion came just in time when domestic demand was growing.

Cement companies also enjoyed more favourable retention with cement prices up 8 percent year on year. Based on estimated volumes, Pioneer’s revenue per ton sold actually grew by 80 percent which is phenomenal.

Global coal prices have certainly put pressure on costs as they rose dramatically over the past year. Average prices paid by cement companies on imported coal was 10 percent higher than last year—given a month-lag (Read what’s happening to coal prices: “Coal rush!”, Jul 9, 2021 and “Coal dunnit”, Aug 6, 2021).

But it seems the strong growth in retention prices in domestic markets shielded the blow from costlier inputs allowing Pioneer to go from negative gross margins to 19 percent in just a year. Unlike other cement firms, Pioneer’s debt levels rose which pushed finance costs up—from 6 percent of revenue to 8 percent of revenue in FY21 despite lower interest rates. Meanwhile, the company massively cut down on overheads, recording at 2 percent of revenue versus 6 percent last year. Earnings were further buttressed by 14 percent of pre-tax profits coming from “other income”.

Pioneer’s extraordinary top-line performance together with controlled overheads led to the company’s earnings per share rivalling some of the bigger players in the industry such as DGKC; in fact, leading the larger player by comparison.

Despite a slower growth recorded in the first two months of the fiscal year, the cement industry is all set to enjoy the flurry of activity happening within the construction industry pushed by government and private sector spending. Coal prices are supposed to simmer down in the next quarter and if demand circles back into the robust category, companies will maintain pricing power which can only take earnings forward. Good times are ahead!