Zeal Pak Cement Factory Limited

The Zeal Pak Cement Factory Limited was established in 1956 with financial assistance from New Zealand. The company initially had two wet process Kilns, with a production capacity of 400 tonnes per day (TPD). A third unit was subsequently added in 1960, followed by another unit three years later, raising the capacity of the factory to 1,600 TPD. Like many others in the cement sector, Zeal Pak also underwent privatisation in the pursuance of the national policy of the privatization of public sector industries in 1992. With 51 percent share of the company, the management was taken over by M/s. Sardar Mohammad Ashraf D. Baluch (Pvt) Limited.
As part of its 'Balancing Modernisation and Rehabilitation' Scheme (BMR), Zeal Pak had undertaken the installation of a new crusher of 700tph at the quarry, a Long Belt Conveyor extending 3.5-km in length and a Stacker/Reclaimer. The BMR was undertaken with the support of World Bank, which provided a loan of 8.015 million dollars, along with arrangement of local financing by the State Cement Corporation of Pakistan. The cost of BMR was estimated at Rs 420 million at the time.
The Belt Conveyor can significantly reduce the cost of raw material by replacing the existing system of transportation of limestone from quarry to the crusher via dump trucks. Zeal Pak's main products include Ordinary Portland Cement, Portland Blast Furnace Cement and Sulphate Resistance Cement. Their plant has six kilns, wet process technology, surplus capacity for cement grinding and packing, and quality control processes using X-ray analyser. The company is governed by a board of nine members, with Mazhar Ali Jatoi as the Chairman and Jehangir Akbar as the CEO. Zeal Pak's plant is located in Hyderabad district, while the head office is in Karachi.
Industrial review The industry performed relatively better compared with the previous year as construction activities in both public and private spheres kicked up. In fact, cement sales volumes were highest in the country during FY14, despite experiencing a decline on the export front.
Most recently, the sector had experienced in uptick owing to the Rawalpindi-Islamabad Metro Bus Project, which should have been affected by the recent protests in the capital. Prospects for the cement sector ran high with sizable allocations towards infrastructure development in the PSDP. A number of mega projects, including Khanki Barrage, Bhasha Dam and the recently approved Karachi-Lahore Motorway and Dasu Dam have also been announced by the current government. Further, private sector led activity also supplemented cement sales, particularly in the North region.
Financial performance 9M FY14 Zeal Pak's production grew during the third quarter of FY14; while cement production registered a modest increase of just two percent, production of pure slag during the quarter rose by a remarkable 122 percent. Cement sales for the period stood at 81,000 tonnes, while sales of pure slag were registered at 74,655 tonnes.
The company has continued to struggle, however, with financials indicating an increasingly weaker position. Despite an impressive 45 percent increase in sales during the nine-month period, the consistent increase in cost of sales has led to remarkable losses. While administrative expenses have been curtailed, coming down by 17 percent, the phenomenal increase in distribution costs has had a significant drag on the company. During the period under review, distribution costs rose by a staggering 800 percent.
Under such a scenario, relief came from 'other income', which turned positive compared with the corresponding period the previous year and registered an increase of 101 percent. This also eased the pressure on operating loss of the company. This was further supported by finance costs and taxation, both of which also came down by 73 percent and 17 percent, respectively.
However, at a time when the cement sector has been performing relatively far better, the company posted a net loss of Rs 169 million, up by 32 percent compared to the corresponding period of the previous year. In the cost component, Zeal Pak seems to have suffered most on two fronts: fuel and power costs registered an immense increase of 415 percent, reflecting the company's vulnerability in this area. Not surprisingly, therefore, other players in the sector have been in the process of establishing in-house power generation facilities. Repair and maintenance costs, which rose by 304 percent, have also hit the company hard. All the same, salaries, wages and benefits also increased by 130 percent during the period. Overall, Zeal Pak's net earnings suffered further and registered a 33 percent increase in losses.
Future outlook Prospects for the cement sector in Pakistan have lately been overshadowed by an uncertain political climate and flooding across the provinces of Khyber-Pakhtunkhwa and Punjab. The situation will be aggravated if the floods take a similar turn toward the South, where Zeal Pak also operates.
However, once the late monsoon season is over, prospects will re-emerge for the cement sector as the government initiates reconstruction and rehabilitation activities. While Zeal Pak has registered an increase in sales volumes, it has suffered badly from phenomenal costs. These prospects can help the company in addressing its insecure position, provided cost components, such as distribution and repair and maintenance are brought down significantly.

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Zeal Pak Cement Ltd - Key Financials

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                                  Nine months ended

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Rs (mn)                    31-Mar-14      31-Mar-13

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Net sales                      229.3          156.4

Cost of sales                  370.4          209.6

Gross loss                    -141.1          -53.2

Administrative expenses        -23.8          -28.9

Distribution cost               -1.9           -0.2

Other operating income/loss      0.6          -37.1

Operating loss                -166.1         -119.3

Finance cost                    -2.0           -7.4

Loss before taxation          -168.1         -126.7

Taxation                        -1.3           -1.5

Loss after taxation           -169.3         -128.2

Loss per share-basic (Rs)      -0.4            -0.3

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