Taking hard decisions: Thatta Cement solidifies position with smart moves

CEO expects the company to beat the sector at its own game.

KARACHI:

Stagnant demand and huge idle capacity utilisation in the cement sector has failed to discourage smaller cement companies like Thatta Cement, which is going to replace its decades-old plant. The plant was commissioned in 1982.

“We are satisfied with our performance in the fiscal year 2012-13 in which the company switched back to profitability after two years,” Thatta Cement CEO Muhammad Fazlullah Shariff told The Express Tribune in an interview.

The company, which is part of the Arif Habib Corporation, posted a net profit of Rs148 million in fiscal 2013 against a loss of Rs43.88 million in the previous year.

Last year, the company had also invested in a gas-fired captive power plant – an investment that shielded the company from the recent hike in electricity prices that irked most cement companies. Though, the government also raised gas prices for captive power plants by 17%, which was better than the sharp jump of over 50% for those companies which were on the national grid.



The management of Thatta Cement is looking forward to greater efficiency. After attaining the peace of mind of uninterrupted power supply from its own subsidiary in December 2012, the company is now going to acquire a new plant from FLSmidth, a Danish supplier of cement plants and technology. Out of the total capacity of 23 megawatts (MW), the company consumes only 10MW and sells off surplus capacity.

When asked why some cement companies were extremely agitated on the recent rise in electricity rates, Shariff said that the cost of electricity is more than 60% of the total cost of cement production. “The price hike of over 50% in electricity rates has significantly raised the final cost of production of those cement companies that are on the national grid,” he added.

Thatta Cement exports 95% of its produce in the local market and exports just 5%. It used to export a large part of its produce to Sri Lanka but it is now only exporting to Sudan owing to the low prices that it was being quoted to export in the region. The company sells most of its produce in southern region of the country as its plant is also located in the south about 115 kilometres (km) northeast of Karachi in Makli, District Thatta.

The installed annual production capacity of Thatta Cement is just 450,000 tons, which is just a tiny fraction of the nearly 45 million tons installed capacity of the cement industry as a whole, according to the All Pakistan Cement Manufacturers Association, a lobbying group.

The cumulative figures of domestic cement demand and exports make up just 33 million tons (25 million tons local demand and seven million tons exports), which means that the cement industry is just able to utilise 73% of its total installed capacity.

The reason for this low utilisation of capacity is the low cement demand in the country. But industry officials believe that cement demand is going to improve in the coming months that will give companies a chance to increase prices which they think should rise after the recent increase in power tariff for industrial consumers.

“Certainly, the cement companies will increase cement prices because no one is doing philanthropy here. With low volumes right now, the industry cannot go for an increase in cement prices. However, with the increase in volumes, the companies will offset the pressure that they are bearing now,” said Shariff on the expected rise in cement prices.

Like other business executives, Shariff is optimistic about the state of the economy (for the cement sector). He thinks that the present government is going to increase spending on infrastructure projects that will improve cement consumption in the country.

Published in The Express Tribune, September 22^nd, 2013.

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