Reports over the weekend suggesting the government of Khyber Pakhtunkhwa had awarded 14 licences to set up cement factories in the province caused a stir among cement sector analysts who saw a the concrete glut ahead.

Chief Executive Officer of Attock Cement Pakistan Limited (ACPL), Babar Bashir Nawaz, however, remains unruffled. Talking to this writer last Wednesday, he said that it was too early to say what the likely impact could be, but he reckoned that there was many a slip between the cup and the lip.

“It takes about five years from the grant of licence to the setting up of a new project”; he says and wondered if all parties who may have acquired licences were serious enough in launching a highly capital-intensive cement project.

Apart from the additional capacity being created by Lucky Cement Company and the D.G.Khan Cement Company, Attock itself has undertaken work on 1.2m tonnes of brown field project with construction work currently on full swing. The project will resolve the company’s capacity constraints as it operates at 110pc utilisation.

Mr Nawaz does not expect the expansions, both in the North and South, to flood the market with surplus cement. The demand, he affirmed, had already doubled to 24,000 tonnes, from 12,000 tonnes.

“Visualising economic growth at 6-7pc and the host of upcoming mega projects both in the public and private sector, the overall production from the cement sector is likely to be absorbed”, he said.

Sector watchers believe major catalysts for ACPL’s growth of earnings will be the Gwadar/China Pakistan Economic Corridor (CPEC) related demand; timely commissioning of south expansion and sustainability of margins.

“Visualising economic growth at 6-7pc and the host of upcoming mega projects … overall production from the cement sector is likely to be absorbed” says Babar Bashir Nawaz

The CEO of ACPL takes pride in the popularity of the company’s ‘Falcon’ brand, which he claims commands a premium in price over the other two dozen brands in the marketplace with the company also enjoying 20pc market share.

ACPL has the advantage of a firm financial backing. It is in the folds of the Pharoan Group.

Widely known as the ‘Attock Group’, four other group companies: Attock Petroleum, Attock Oilfields, Attock Refinery and National Refinery, are listed on the country’s stock exchange. With the number of paid-up shares at 115m in ACPL and current market price of the stock at Rs335, market capitalisation of the company works out at Rs39bn.

The ACPL plant is located in Hub Tehsil in Balochistan, at a distance of 45km from Karachi. In order to tide over the perennial problem of power tariff and supply, ACPL has initially undertaken 15MW Waste Heat recovery project.

Besides the expansion in the South, the ACPL chief said the other major work in hand was a 0.9m tonnes grinding project in Basra, Iraq. Work on the project was in full swing with the expected completion by the end of the current year. Overall the project cost is estimated to be $40m.

Market watchers affirmed that the project appears value-accretive in terms of timing and location. M Arsalan Siddiqui, sector analyst at Foundation Securities says the Iraq project would partially mitigate the future risk of domestic cement prices as the industry has entered an expansionary cycle with 84pc capacity addition in the South.

ACPL reported earnings of Rs1.4bn, translating into earnings per share of Rs12 for the 1HFY17, in the recently reporting season. Earnings were up 20pc over the corresponding first half of the previous year. The growth in earnings was attributed to surge in sales by 13pc, backed by higher dispatches and 430bps YoY higher margins due mainly to lower fuel and power costs.

Analyst Sajjad Hussain at BMA Capital Management, while reviewing 2QFY17 financial figures, said that earnings remained flat at Rs687m. “Though dispatches were up 12pc over the previous quarter (QoQ), decline of 410bps in margins QoQ following a jump in coal prices acted as a limiting factor”.

Pakistan’s cement sector is still doing well. According to analyst Nabeeel Khursheed at Topline Securities, overall cement sector profits amounted to Rs30bn for the just concluded reporting season for first half of financial year ended Dec 31, 2016.

The earnings represented growth of 17pc over the corresponding period of the previous year. Sales rose 18pc to Rs119bn and gross profit jumped 24pc to Rs50bn year-on-year. Sector profitability grew on the back of higher sales, thanks to strong local demand.

Domestic demand has continued to soar, given support from private sector spending and infrastructure projects under the CPEC.

The credit to construction sector also vastly improved by 26pc over the 1HFY16, leading to robust activity in the building field. Efficient fuel mix and better coal inventory management also helped gross margins of cement sector take a giant leap of 42pc in 2QFY17.

Published in Dawn, Economic & Business, April 3rd, 2017