Home »Brief Recordings » Thatta Cement Company Limited

Historical view: Thatta Cement Company Limited (PSX: THCCL) was founded in 1982 with a manufacturing facility located in the Makli District, Thatta. The facility was kick-started with a capacity of 1,000 tons per day (later expanded to 1,500 tons per day) and is in close proximity to raw material reserves such as limestone and clay.

The company has the mining rights for extracting limestone from 2,364 acres, shale/clay from 1,121 acres and silica sand from 1,239 acres of land, respectively. In 2010, the company acquired additional rights to mine limestone from 1,240 acres of land.

Thatta was privatized under the second privatization wave of 2000s, acquired by a consortium of Arif Habib group and Al-Abbas group. The group sold its 61 percent of its stake to a consortium of four private companies in 2013. Today, the company's installed clinker capacity is 547,500 tons after it was enhanced from 450,000 tons as a result of Balancing, Modernization and Rehabilitation of the plant completed in July 2015. The company is currently running at 70 percent of its production capacity after improving efficiency.

Product line and markets:

Thatta has a very diverse product portfolio in cement compared to other cement firms and apart from manufacturing portland and sulphate resistant cement variety, it also produces a variety of portland blast furnace slag, ground granulated blast furnace slag (GGBF) used in blending and as filler in foundations, and Class G Oil Well Cement. The company received a certification by the American Petroleum Institute (API) to supply the latter variety. The Class G cement is used by oil and gas exploration companies and Thatta is the only Pakistani company that can market its product to countries that use this variety of cement for the construction and drilling of oil wells.

Cement companies usually supply to markets that are close to keep distribution costs low. However, due to the nature and quality of some of Thatta's specialized products, the company reaches market as far as Azad Kashmir. The company also exports to markets including Sri Lanka, India, Middle East and some African countries including Sudan.

Company's ownership and investments:

Thatta has had an interesting history. It was owned by the Arif Habib group which sold out its majority stake in 2013 at transaction value of Rs 1.5 billion to four private companies. Sky Pak Holding and Al-Miftah Holdings each bought 22.7 percent of the company's shares, while the other two private companies - Golden Globe Holding and Rising Star Holding - bought 8.5 percent and 7 percent of Thatta Cement's shares respectively.

As of June 2016, Arif Habib Corporation and Arif Habib Limited together owned around 18 percent of the company's shares while Sky Pak Holding held 20.5 percent. Rising Star Holding (Private) Limited and Golden Globe Holding (Private) Limited held 6.3 percent and 8.5 percent of company's shares while National Bank and Summit Bank held 9.89 percent and 8.49 percent respectively.

Thatta Cement now also has a subsidiary called Thatta Power that was set up in 2010 and principally generates and supply electric power to its holding company. Thatta Power was a 62.43 percent wholly-owned subsidiary of Thatta Cement year end FY16. The company also supplies electricity to Hyderabad Electric Supply Company Limited (HESCO) after entering into an agreement with HESCO.

The captive power plant produces 23 MW of electricity, of which 10MW is used by Thatta while the rest is provided to the grid. Thatta Power was granted a generation license from NEPRA for its natural gas based thermal generation facility for the total installed capacity of 45.984 MW to be set up in two phases. In the first phase, the company successfully installed capacity of 23 MW in 2012.

Bringing efficiency into business:

Even though Thatta is a small company with a small share in the cement industry, its proximity to Karachi's port gives it an advantage to keep costs down as transportation is significantly cheaper while the plant is located near key raw materials that can be mined.

Over the years the company took several steps to upgrade its manufacturing facilities, in order to improve the efficiency of its plant and use alternative fuels to diversify. The company modified its clinker transport system and added a new rotary packing system to speed up the bagging process at the end of the manufacturing cycle.

The company completed its Balancing, Modernization and Rehabilitation (BMR) project in 2015 and managed to enhance its capacity, as mentioned above. The BMR helped in the conversion of existing cement making process into pyro-process system which was efficient and more environments friendly. Meanwhile, the company's subsidiary is setting up a 5MW Waste Heat Recovery (WHR) unit utilizing waste to produce power.

Cutting down costs will go a long way in improving margins and bringing profitability up especially in a highly efficient sector such as the cement industry.

Operational and financial performance:

Thatta cement despite being a small ship in a sea of some big ones has not only come a long way but also diversified its product line to cater a specialized, niche market with great potential to export its oil well cement to fuel exploration companies across the world. Plus, the energy efficiency will prove to run in its favour in the years to come. The company's capacity utilization for clinker has improved tremendously from FY16 compared to prior years.

Production of clinker has kept on a similar level since FY10 as capacity remained the same and utilization also maintained on the same levels. In fact, utilization was higher in FY10 then it was in FY15 and FY16. However, GBFS grew really fast after FY10 and continue to grow until the outgoing fiscal.

Overall sales have improved over the years despite a strong squeeze in exports where share of exports in total sales has gone from 33 percent in FY10 to one percent in FY16. Sales for GBFS and Class G cement have helped but since they are specialized products, their sales greatly depend on a very small and niche market, and remain small.

The company's bottom line has remained below a billion rupees until now despite improvement in revenues and cutting down in costs. Until FY12, the company was in losses so it has changed its fortunes toward the better. Its gross margins testament to reduction of costs of production has improved from 18 percent to 32 percent between FY10 and FY16 while its net margins have also come up to 22 percent from 6 percent in FY13 when the company made profits for the first time.

Recent operations and outlook:

This current fiscal year is looking up for Thatta cement-the company has had strong production growth and revenues rose by 48 percent in 9MFY17 year on year. The company managed to sell out its additional clinker in stock for additional revenues.

Margins improves from 34 percent to 36 percent and the company witnessed a cut in finance cost as greater cash flow resulted in prepayment against long term financing facility and lower utilization of short term financing. This will likely increase once the payments for the WHR financing start but again the unit should cut down on electricity and power costs so it would help in the long run. Thatta did incur higher distribution and administrative expenses due to increase in incentives/commission paid to dealers on account of increased sales coupled with annual increment in salaries and wages of sales teams.

On the outlook side, overall industry is up for a huge boost with more 10 cement firms are planning expansion projects to the combined tune of 30 million tons.

Thatta being a much smaller company with strong fundamentals should be thinking along the lines to increase its market share and in fact, retain the portion it has in the economy. An expansion does not seem out of question.

It should also reach nearby markets across the border for its class G cement that is unique to Thatta to boost revenues. Demand and its own sustainable upward growth are Thatta's side.





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Shareholders Holding 5% Or More (as at June 2016) Shares %

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National Bank Of Pakistan 9,859,862 9.89%

Summit Bank Limited 8,462,835 8.49%

Arif Habib Corporation Limited 10,254,987 10.28%

Arif Habib Limited 7,555,817 7.51%

State Life Insurance Corporation Of Pakistan 7,491,317 7.52%

Sky Pak Holding (Pvt) Ltd 20,444,214 20.50%

Al-Miftah Holding (Pvt) Ltd 9,146,788 9.17%

Golden Globe Holding (Pvt) Ltd 8,479,090 8.50%

Rising Star Holding (Pvt) Ltd 6,308,917 6.33%

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Source: Company accounts.





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Thatta Cement in 9MFY17

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Rs (mn) 9MFY17 9MFY16 YoY

Sales 2,949.1 1,993.3 48%

Cost of Sales 1,900.4 1,309.8 45%

Gross Profit 1,048.7 683.4 53%

Selling expense 75.1 45.7 64%

Administrative costs 113.1 93.0 22%

Finance cost 104.1 142.4 -27%

Other income 124.0 109.5 13%

Profit before tax 835.9 471.2 77%

Taxation 199.2 11.4 1655%

Net profit for the period 636.6 459.9 38%

Capacity-mn tons (%share) 0.45 (1%)

Earnings per share (Rs) 6.6 4.50 47%

GP margin 36% 34%

NP margin 22% 23%

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Source: Company Accounts

Copyright Business Recorder, 2017


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