Location is everything. In the north zone, domestic demand slump due to prevailing economic conditions and contractionary policies of the new government dominated sector performance. Key exporting markets for north zone players also showed lethargy, particularly Afghanistan. India on the other hand had slapped 200 percent duties on Pakistani exports that more or less stopped all exports to that market. Both domestic and exporting markets were found shrinking though ongoing infrastructure and commercial projects remained on track. Moreover, the restriction on property buying by non-filers was also lifted that provided much needed impetus.

Retention prices per ton on the other hand fluctuated due to rising competition during the year, but DGKC seems to have done well on retention overall. Average net retention per ton grew 18.5 percent in 9MFY19. The company raised clinker production by 47 percent, but cement production by only 17 percent in 9MFY19. Local sales grew by 15 percent, cement exports came down by 40 percent and clinker exports grew to 100 percent. This is where its new Hub-line comes in. In the south zone, proximity to the ports allow cement manufacturers to sell of cheaper clinker to markets abroad, which in times of depreciated currency are more competitive. On the downside, they fetch lower prices.

Even so, the revenue growth of 32 percent in FY19 is great considering all the dynamics coming into play. Though the bleeding began on the cost side. Imported coal and depreciated currency caused costs to go up though on average coal per ton cost less. Higher freight and other fuel prices especially expensive electricity and power brought margins down to 13 percent from 28 percent in FY18. Net margins critically came down to 4 percent compared to 29 percent last year.

The company’s finance costs grew from 2 percent to a whopping 8 percent of revenues due to expansion related loans the company took for the new plant while higher interest rate scenario only raised the mark ups. The company limited its other operating expenses, kept distributions costs as a share of revenue constant (which is a feat given higher exports) and administrative expenses the same as last year (despite inflationary pressures). Together these expenses were 6 percent of revenues compared to 13 percent last year. Much higher finance costs however diluted the desired effect on earnings of these reduced expenses.

Though in 9M, the outlook would have looked different, the full fiscal year picture is not too bad given what is to come. Some cost pressures will be reduced as coal prices are at their very low. Better inventory management and negotiated coal contracts may help with reducing costs. Retention prices are remaining in the same range while FY20 may actually see the launch of the Naya Pakistan Housing Program where some construction may start too. Loosening of monetary policy in the coming months may also relieve some pressure from the bottom-line. Though all is not well in terms of major demand recovery, but all hope is also not dead.