Pioneer Cement Limited

Pioneer Cement Limited (PSX: PIOC) was set up as a public limited company in 1986. The company has three production lines located in Punjab where it manufactures and sells cement. As of 2022, Pioneer Cement also has a 12MW Waste Heat Recovery Power Plant and 24MW Coal Power Plant.

Shareholding pattern

As at June 30, 2021, close to 51 percent shares are held by foreign companies. Majority of this are held by Vision Holding Middle East Limited. Over 21 percent shares are held in joint stock companies followed by 15 percent by the local general public. Nearly 5 percent are held in modarabas and mutual funds, while the directors, CEO, their spouses and minor children own less than 1 percent. The remaining over 7 percent shares is with the rest of the shareholder categories.

Historical operational performance

Since FY07, the company has largely seen a growing topline with the exception of a few years. Profit margins, on the other hand have been declining between FY16 and FY20 before improving again in FY21.

In FY18, PIOC’s revenue contracted by nearly 5 percent. While volumes had depicted growth, total revenue was adversely impacted due to lower prices. Growth in volumes can be attributed to expanding demand coming from infrastructure and housing sector, particularly with the work on Gwadar Port, KKH- Phase 2 and the Karachi-Lahore motorway. However, production cost spiked from over 58 percent of revenue in FY17, to over 72 percent in FY18. This was due to an increase in international coal prices, paper prices, fuel and power cost, that was further aggravated by currency depreciation. With other income also declining, net margin reduced to over 16 percent, compared to 27.4 percent in FY17.

Topline continued to contract in FY19 for PIOC, by almost 4 percent with revenue falling below Rs 10 billion. Local dispatches for cement registered a 6 percent decline, while clinker dispatches were nil. In addition, production cost continued to rise as it made 78 percent of revenue. This was due to a rise in paper prices that in turn increased the cost of packing materials. This increase offset the positive impact seen by a fall in coal prices. Thus, gross margin shrunk further to nearly 22 percent. With operating expenses also making a larger share in revenue, in addition to rising interest rates as well as higher borrowing, net margin fell to 8 percent, the lowest seen since FY11.

In FY20, PIOC saw the biggest contraction in revenue as it fell by over 35 percent. This was despite a 20 percent rise in dispatches. This was due to an increase in FED rate in addition to a reduction in net cement price to an average of Rs 5,119 per ton, compared to Rs 6,735 per ton in FY19. As a result, the company could not cover costs and incurred a gross loss of Rs 103 million. Although other income increased, it could not do much for the bottomline that was recorded at a net loss of Rs 210 million.

Revenue bounced back for PIOC in FY21incredibly as it shot up to Rs 21.8 billion, from last year’s Rs 6.3 billion. In addition to an improvement in prices, the major factor was a near doubling of total dispatches to 3,380,599 tons, compared to 1,734,877 in FY20. During the year the company also commenced production on its new production line that brought in production efficiency. This is reflected in the production cost reducing to 81 percent of revenue, thus allowing gross margin to improve to almost 19 percent. This reflected in the operating margin that also received support from other income. However, net margin, although increased, but it saw a relatively smaller incline as finance expense escalated to consume over 8 percent of revenue. Thus, net margin was recorded at 9 percent for the year.

Quarterly results and future outlook

PIOC’s revenues in the first quarter1QFY22 were higher by 55 percent year on year. This was attributed to an increase in average net sales price to Rs 7,962 per ton versus Rs 5,709 per ton in the corresponding period. In addition, demand was also growing that encouraged the company to increase production. On the other hand, production cost was significantly lower year on year at over 76 percent that allowed profitability to take off with a net margin of 7.7 percent compared to a net loss of Rs 40 million in 1QFY21.

Revenue in the second quarter 2QFY22 was 60 percent higher year on year. This was a result of an increase in local dispatches in addition to an improvement in retention prices. Production cost was again lower year on year at over 79 percent of revenue, as the company relied on local and Afghan-origin coal, coupled with utilizing captive power generation. While gross margin was higher in 2QFY22, the same was not observed about net margin that was lower at 7.7 percent compared to 12 percent in 2QFY21. This was due to an escalation in other expenses coupled with a substantial decline in other income, and increase in finance and tax expense.

The company’s revenues were again higher in 3QFY22 year on year, by 23 percent. This was due to a combination of selling price and volumetric growth. However, production cost reduced profitability, particularly due to a rise in global energy prices. This also trickled to the net margin that was lower at 6.3 percent. While demand is expected to sustain, profitability is threatened by rising input prices. Despite, company’s efforts to reduce costs by sourcing products locally, the inflationary impact are not entirely offset.