Attock Cement (PSX: ACPL) is one of the smaller cement manufacturers located in the south serving mainly the few markets in the south region and exporting overseas having close proximity the ports. Exports are important for Attock as the domestic market pie is smaller compared to its counterpart in the north where mega infrastructure projects are taking place. The nine-month financial statement for the company reflects this well.

The company’s exports in the total sales mix has dropped from more than 60 percent to 40 percent which has ultimately hit the margins. Costs—mainly associated to imported commodities like coal—and freight rates have skyrocketed over the past year or so having been hit by multiple crises, from a global pandemic to an all-out war between Russia Ukraine. Couple that with a depreciating rupee. Estimated per unit sold revenue and costs show that despite improved retention (cement manufacturers have been raising prices in the domestic market), cost per ton sold grew much more—42 percent vs 34 percent in revenues. Exports have dropped because importers are reluctance to pay the right price amid rising freight costs.

Despite this, Attock managed to land a profitability growth of 23 percent in 9MFY22. Earnings were substantially bolstered by “other income” which was 37 percent of the company’s before-tax earnings. This means, only about 60 percent of the profitability is coming from Attock’s primary business activities, with reliance on investments growing. This was only four percent last year.

Domestic demand came to the rescue this year and remained strong against all odds. The company fetched higher prices as well (up 32% in the last quarter year on year) which resulted in higher revenue per ton sold but ultimately, costs came to beat. As a result, gross margins have squeezed in 9M.

Decline in overheads to 11 percent in 9MFY22 versus 14 percent of revenue in the previous year during the same period as well as other income shored up the net margins and led to the earnings growth, despite higher taxation. The overheads decline was mainly due to lower distributions costs owing to reduced exports overseas.

With the PTI government ouster and many construction and development projects started by that government under the Naya Pakistan Housing Plan and construction amnesty scheme hanging in the balance, the future of construction is shaky at best. On top of that, high inflationary pressures and rising cement and steel prices have already put off many builders and home-buyers. Continued price increases will affect demand.