There is nothing particularly surprising about the cement industry making reasonable earnings amid a demand drought. This is familiar territory for many cement companies that have diversified their target markets by maintaining a healthy mix of exports in their sales mix, wielding significant pricing power that they enjoy with their peers, and optimizing costs by making nifty investments in energy and cost efficiency projects. Even when domestic demand plummets—as it did during FY23 and FY24 and now visibly in FY25—cement companies, big and small, continue to turn a profit. Numbers speak volumes—between FY22, a phenomenal year for sales, and FY24, a rather dismal one, cement dispatches fell 14 percent, but the combined earnings of 16 listed cement companies expanded 52 percent. In 1QFY25, dispatches are again down by 14 percent year on year, and yet combined earnings have risen 13 percent. Familiar indeed. What’s less familiar however are the performances of certain smaller companies that are rising above the fray and making themselves known.
There is Thatta Cement which has previously remained relatively inconsequential is now emerging as a standout, outpacing some much larger competitors. In FY24, Thatta’s margins surged to 29 percent from just 8 percent in FY23; a massive jump if there ever was one. In 1QFY25, Thatta continued its streak of good fortunes by delivering margins of 43 percent, well above the industry’s average of 28 percent. This is especially impressive considering the size of Thatta. The scatterplot interactive graph shows Thatta at the top left of the chart boosting margins even higher than market leaders, Lucky and Bestway cement (in terms of capacity and revenue). Kohat Cement is another player that has been on our radar. While it is still a mid-sized company by capacity and revenue streams, Kohat has always maintained high margins by keeping its costs in check.
Compare this to a company like DG Khan Cement that has landed its products in the US after much ceremony and expanded capacities in the south zone making it one of the only two companies to supply cement to both the north and south zones of the country. Despite this and its fairly big size in terms of revenue, DGKC’s risks have yet to pay off as the company drowns under the pressure of high costs, overheads, and financial expenses.
Both Thatta and Kohat, meanwhile, are making impressive strides by keeping expenses tightly under control. Both Thatta and Kohat have paid off their long-term debts in time. In 1QFY25, financial expenses accounted for just 1 percent of revenue for both companies, while overheads were 3 percent for Thatta and 2 percent for Kohat. In comparison, the average industry financial expenses and overheads during the same period were 5 percent and 7 percent of revenue, respectively. These factors have driven the two companies into a profitability surge of 4.9x and 1.5x during the quarter. What’s more but making the right investments at the right time. While Thatta’s “other income” was 21 percent of revenues in 1QFY25, Kohat’s was 15 percent; miles ahead of the industry average of 5 percent.
Another emerging contender on the leaderboard is Cherat Cement, a mid-sized plant whose profits surged 1.8x in 1QFY25. With margins exceeding 40 percent—higher than Lucky Cement—it has also posted surprisingly strong earnings per share. Like Thatta and Kohat, Cherat has kept its costs in check, with low finance expenses at just 2 percent of revenue and overheads at 4 percent.
Companies like Fauji, Bestway, DGKC, and Mapleleaf Cement that rival these smaller players in terms of revenue and capacity evidently have a lot of ground to cover as the leaderboard evolves, and a few things to learn from their more nimble peers.
Comments