Power Cement Limited (exchange ticker: POWER) was previously known as Al Abbas Cement Industries Ltd and founded in December 1981 as a private limited company. It went public in July 1987 and is currently listed on Karachi and Lahore Stock Exchanges. POWER is engaged in the manufacturing, selling and marketing of cement. Its head office situated in Karachi with undertakings at Deh Kalo Kohar, Nooriabad Industrial Estate and District Dadu in Sindh.
POWER is part of the Arif Habib Group of Companies, with diverse interests in securities brokerage, investment and financial advisory, investment management, commercial banking, commodities, private equity, cement and fertilizer industries. The Board of the Company is currently chaired by Nasim Beg, while Kashif Habib serves as the CEO. In 2007, the company was issued the ISO 9001:2008 certificate in recognition of compliance with quality management system. POWER's plant at Nooriabad has an installed capacity of 0.95 million tonnes for production of cement.
Industrial Review The cement industry has been picking up during the outgoing quarter particularly with the announcement and inception of a number of infrastructure related projects in the country. Further, the government is likely to remain focused on such projects to boost economic growth. Domestic sales have registered a 1.17 percent growth during 10M FY14 and peaked in the month of April. PSDP allocations in the budget for the year will be significant in driving cement sales in the country, given that exports not only have taken a downturn but also are likely to continue the declining trend (see BR Research column: Wither cement exports?, published May 21, 2014). Suppressed prices of coal have also been contributing to better margins for industry players.
Financial Performance 9M FY13 Sales volume of POWER came down 8.1 percent during the period. However, there was a 2.9 percent increase in net sales, owing to an industry-wide price increase which was meant to pass on inflationary pressures to end-users. The decrease in sales volume was in line with the decrease in industry demand, given that POWER is located in the south zone. The north zone, on the other hand registered an increase of four percent in local despatches for the period.
POWER's gross margins have also been affected by the increase in electricity rates and lower capacity utilisation, coming down to 6.3 percent from 18.4 percent during the corresponding period of last year. During the third quarter of the current fiscal year, sales picked up across the industry. This, along with the increase in cement prices, helped push the company's margins, growing 8.7 percent compared with 4.9 percent during 6M FY14.
Production of cement and clinker during the period fell down by 5 percent and 21 percent, respectively. The decline was attributed to plant maintenance and planned shutdowns, particularly during the third quarter of the year. Distribution costs increased dramatically this year, up by 136 percent during the nine-month period and by 35 percent during the quarter compared with corresponding periods of last year; however, there was a reduction of 17 percent in finance costs.
POWER's profitability has grown negative during the year, with the company posting a loss of Rs 181 million before tax and Rs 192 million after tax during the nine-month period. Similarly, an after-tax loss of Rs 55 million was posted during the third quarter of the current fiscal year as against a profit of Rs 79 million during the same period of last year. Administrative expenses for the company have grown while there has been sizable decline in other income.
Consequently, operating profit has also come down substantially by 89 percent during the nine-month period. Operating profit also went negative with a loss of Rs 2.2 million during the third quarter of the current fiscal year. EPS have also taken a brunt and have come down by over 150 percent during the year.
Future Outlook There has not been a significant increase in cement demand for POWER even over the last quarter when sales were beginning to pick up for the industry. Like other cement players, POWER is also counting on the government's mega plans for infrastructure development and associated allocations in PSDP. While despatches have been high for the north zone, demand for players in the south zone has deteriorated. South zone players have an advantage in terms of exports for being closer to the port. POWER, however, does not have significant exports to capitalize on that front.
More importantly, higher sales of north zone players might also be indicative of the geography of infrastructure development in the country. With the PML-N in power, the Punjab government has so far been most proactive with such projects, which have ultimately benefited north zone cement manufacturers.
Private sector housing and real estate development has been on a rise in the south, which might drive local despatches over the coming months. However, one cannot discount the law-and-order situation which continues to shy away investors from the country's largest urban centre.
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Nine months ended 31 March Quarter ended 31 March
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Rs (mn) 2014 2013 2014 2013
Net sales 2621.337 2546.711 934.926 1091.532
Gross profit 165.654 469.641 81.699 253.047
Profit before taxation -181.305 338.124 -36.557 100.19
Taxation -10.813 26.402 -19.003 -20.329
Profit after taxation -192.118 364.526 -55.56 79.861
Earnings per share (Rs) -0.52 1 -0.15 0.22
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