Tokyo Cement PLC (Tokyo) will be challenged on both the revenue and cost segments in coming years despite an expected construction boom in the economy, according to analysts.
“Fluctuations in limestone in the world market will be the main barrier towards the cost of sales while the government controlling procedures of retail cement prices would make an impact on expected revenue of the group,” an industry analyst said. A stock analyst said that Tokyo’s results (net loss of Rs 77 million for the third quarter) can be due to the possible reduction in sales volume, suggesting that either construction activity has not yet recovered or that the company has lost market share.
The company saw its third quarter revenue down 21% year on year
The gross margins have expanded despite lower revenue and TCP saw a sharp increase in depreciation and continued high finance costs during the third quarter. “Any new entry of new players and existing players such as Holcim Cement and other imported cement brands will increase the competitiveness in the industry. Total new entry of a foreign cement giant or reconstructions of Lanka Cement Plant in Kankasanthurai will reduce the margins and market share of Tokyo in the long run,” the industry analyst said, adding that continuous decline in gross profit margins of Tokyo will not delay the ability to generate strong cash flows and to maintain a strong return on invested capital.
He said the performance of the local cement industry was affected by the high cost of raw materials and the deceleration of private sector construction activities. Expected improvement in infrastructure facilities such as power generation, port, airport, roads and highways, and anticipated rehabilitation and reconstruction activities in the Northern and Eastern Provinces, is expected to enhance the production in cement and building material industries, he noted.