Thatta Cement Company Limited

Thatta Cement Company Limited (PSX: THCCL) was incorporated in Pakistan as a public limited company in 1980. The company is engaged in the manufacturing and marketing of cement besides holding the ownership of Thatta Power (Private) Limited.

Pattern of Shareholding

As of June 30, 2023, THCCL has a total of 99.718 million shares outstanding which are held by 2042 shareholders. Associated companies, undertakings and related parties have the majority stake of 52.71 percent in the company followed by local general public holding 26.56 percent shares of THCCL. Foreign general public has 6.16 percent stake in the company while banks, DFIs and NBFIs account for 3.38 percent shares. Around 2.08 percent of THCCL’s shares are held by Modarabas & Mutual Funds. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

Except for a year-on-year plunge in 2020, THCCL’s topline has been following an upward trajectory over the period under consideration. Conversely, its bottomline slid in 2019 and 2020, registering net loss in the latter year. In 2021, THCCL recorded net profit which plummeted the very next year. In 2023, the company’s bottomline considerably expanded. Its margins followed a downright declining trend until 2020 followed by a rebound in 2021. In 2022, the margins drastically fell followed by an uptick in 2023. The detailed performance review of the period under consideration is given below.

In 2019, THCCL’s topline posted 22.02 percent year-on-year rise. During the year, the company’s cement off-take dropped by 6.46 percent to clock in at 368,057 MT due to intense price competition on account of excess availability in the market. Consequently, the company started exporting clinker which resulted in its off-take growing up by 1155.42 percent in 2019 to clock in at 188,890 MT. Despite higher proportion of export sales vis-à-vis last year, the company couldn’t gain higher margins due to considerable hike in the coal prices, packing material and other input and conversion costs which coupled with Pak Rupee depreciation resulted in 11.12 percent thinner gross profit in 2019 with GP margin of 19.37 percent versus 26.6 percent recorded in 2018. Distribution expense multiplied by 213.51 percent in 2019 on account of export logistics and related charges incurred. Administrative expense dropped by 16.57 percent in 2019 due to lower payroll expense as THCCL squeeze its workforce from 530 employees in 2018 to 511 employees in 2019. Other expense also slumped by 33.82 percent in 2019 due to lower profit related provisioning while other income dropped by 39.28 percent in 2019 as THCCL earned no mark-up income from advances to subsidiary during the year. Operating profit declined by 38.46 percent in 2019 with OP margin clocking in at 9.97 percent versus 19.77 percent recorded in 2018. Despite higher discount rate, THCCL was able to cut down its finance cost by 21.79 percent in 2019 due to reduction in outstanding long-term loans. THCCL net profit contracted by 40.17 percent in 2019 to clock in at Rs.213.52 million with EPS of Rs.2.14 versus EPS of Rs.3.58 registered in the previous year. NP margin also dropped from 12.55 percent in 2018 to 6.16 percent in 2019.

This was followed by 49.39 percent year-on-year decline in THCCL’s topline in 2020. During the year, the company’s overall sales volume dropped by 49.84 percent to clock in at 279,488 MT. Lower sales volume was due to 70.36 percent decline in export off-take and 41.81 percent decline in local off-take – reason being the availability of surplus capacities which led to price wars and also because of deceleration of construction activity due to COVID-19 towards the end of FY20. Due to lower capacity utilization, fixed cost was charged as period cost, resulting in 92.25 percent lower gross profit recorded in 2020 with GP margin drastically falling down to 2.97 percent. Distribution expense shrank by 59.25 percent in 2020 due to lower export sales. Administrative expense also sank by 17.46 percent in 2020 due to further shrinkage in workforce which stood at 497 employees in 2020. Other expense slipped by 42.24 percent in 2020 as the company didn’t book any provisioning for WWF and WPPF during the year. Other income mounted by 45.56 percent in 2020 due to increased income from waste heat recovery and higher management fee received from Thatta Power (Private) Limited for business support services provided during the year. Despite keeping a meticulous check on its expenses, THCCL recorded operating loss of Rs.96.78 million in 2020. Finance cost dropped by 12.78 percent in 2020 due to no outstanding long-term borrowings. THCCL posted net loss of Rs.158.02 million in 2020 with loss per share of Rs.1.58.

In 2021, THCCL’s topline registered 38.29 percent rise. This was on account of 32.6 percent increase in sales volume which clocked in at 370,610 MT in 2021. Local sales volume increased by 52.21 percent while export sales volume shrank by 65.27 percent in 2021. Cost optimization strategies put in place during the year coupled with better pricing resulted in 638.31 percent higher gross profit recorded in 2021 with GP margin of 15.85 percent. Distribution expense slid by 13.75 percent in 2021 due to lower export sales volume. Administrative expense multiplied by 15.58 percent due to higher payroll expense despite the fact that the number of employees remained intact at 497. Other expense grew by 21.24 percent due to higher profit related provisioning. However, it was offset by 80.53 percent higher other income due to higher exchange gain, elevated management fee received from the subsidiary company and increased income from waste heat recovery. THCCL recorded operating profit of Rs.267.19 million in 2021 with OP margin of 11.01 percent. Finance cost slid by 61.34 percent in 2021 due to monetary easing. THCCL recorded net profit of Rs.201.79 million in 2021 with EPS of Rs.2.02 and NP margin of 8.31 percent.

THCCL’s topline recorded a staggering 75.66 percent growth in 2022. This was on account of 37.47 percent year-on-year increase in the overall dispatches of the company which stood at 509,483 MT in 2022. During the new the company tapped new market segments which buttressed its sales volume. However, significantly lower export sales took its toll on the margins of the company. Besides, elevated coal prices, Pak Rupee depreciation as well as purchase of electricity from HESCO due to non-availability of gas to Thatta Power (Private) Limited, drove up the cost of sales of THCCL in 2022. This resulted in 16.65 percent decline in THCCL’s gross profit in 2022 with GP margin falling down to 7.52 percent. Distribution expense narrowed down by 24.28 percent in 2022 due to lower export logistics and related charges. Administrative expense surged by 19.3 percent in 2022 due to workforce expansion which stood at 501 employees, resulting in higher payroll expense. THCCL recorded 83.87 percent higher other expense in 2022 due to hefty exchange loss owing to Pak Rupee depreciation. THCCL’s operating profit tumbled by 29.58 percent in 2022 with OP margin shrinking to 4.41 percent. Finance cost surged by 95.52 percent in 2022 due to monetary tightening. The company recorded 40.88 percent decline in its bottomline which stood at Rs.119.294 million in 2022 with EPS of Rs.1.2 and NP margin of 2.8 percent.

In 2023, THCCL’s topline expanded by 26.88 percent. During the year, the company’s local cement dispatches dropped by 13.03 percent to clock in at 438,739 MT while it made no clinker sales which also implies no export sales. Overall industry’s export volumes also dropped during the year due to high prices of coal, Pak Rupee depreciation and higher shipping charges. Despite thinner volume, the company was able to register topline growth and increased margins due to substantial increase in cement retention prices. Gross profit increased by 31.16 percent in 2023 with GP margin ticking up to 7.77 percent. Distribution expense escalated by 50.97 percent in 2023 due to higher freight charges. Administrative expense also soared by 24 percent due to higher payroll expense despite reduction in the number of employees which stood at 493 in 2023. Lower exchange loss culminated into 30.43 percent decline in other expense in 2023. Other income made a tremendous 197 percent growth due to increase in profit from bank deposits and TDRs as well as higher management fee and income from waste heat recovery. Operating profit multiplied by 120.78 percent in 2023 with OP margin climbing up to 7.68 percent. Finance cost surged by 52.38 percent in 2023 on account of unprecedented level of discount rate. Net profit increased by 108.79 percent in 2023 to clock in at Rs.249.077 million with EPS of Rs.2.5 and NP margin of 4.6 percent.

Recent Performance (9MFY24)

THCCL’s topline posted a stunning 41.07 percent year-on-year growth in 9MFY24. This was on account of 21.2 percent higher cement dispatches which clocked in at 387,774 MT in 9MFY24. The company didn’t make any export sales during the period. High retention prices also buttressed topline growth during 9MFY24 culminating into 635.45 percent rise in gross profit and GP margin of 27.78 percent versus 5.33 percent during the same period last year. Distribution expense dropped by 34 percent during 9MFY24 due to no export related expenses incurred during the period. Administrative expense ticked up by 9.45 percent during 9MFY24 due to inflation. Other expense magnified by 801.17 percent during 9MFY24 maybe on account of higher profit related provisioning and exchange losses incurred during the period. However, it was offset by 126.14 percent higher other income supposedly due to higher profit from financial assets coupled with management fee and waste heat recovery income. THCCL’s operating profit rebounded by 894.82 percent in 9MFY24 with OP margin of 28.16 percent versus 3.99 percent in 9MFY23. Finance cost inched up by 13.19 percent due to higher discount rate. This was despite lower short-term borrowings and no long-term borrowings outstanding during 9MFY24. Net profit improved by 1002.60 percent year-on-year in 9MFY24 to clock in at Rs.888.23 million with EPS of Rs.9.47 versus EPS of Rs.0.86 in 9MFY23. NP margin also rose from 2.10 percent in 9MFY23 to 16.4 percent in 9MFY24.

Future Outlook

With gloomy economic and political backdrop, the outlook of infrastructure related spending in both public and private sector doesn’t look encouraging. Moreover, the rising capacities of cement facilities over the years coupled with frail demand has resulted in significant demand-supply gap. Amid such situation, will the cement sector be able to enjoy high retention prices for long is yet to be seen.