Pioneer Cement still to decide on greenfield or brownfield expansion

Pioneer Cement has yet to select a green or brown option for expansion in the Punjab. Topline Securities hosted a corporate briefing session (CBS) for Pioneer Cement Co Ltd (PIOC) on 24 November, where PIOC group chairman, M Habibullah Kha, shared the company’s future outlook. 

The company’s management highlighted that PIOC had acquired a site at DG Khan for a greenfield project in southwestern Pakistan. However, preference would be given to put up additional lines at the current location. Furthermore, they highlight that setting up a new line would require around 15 months. 

Elaborating on expansion plans, management indicated that expanding 2.5Mta capacity, including a captive power plant for the brownfield, would cost PKR70bn (US$245.2m) and greenfield expansion would cost PKR90-95bn. Expansion would be viable if industry demand grows at 5-6 per cent annually. 

The price war between industries
Management expects no price war after the commencement of the Fauji Cement plant (FCCL) at DG Khan, as most players have debt on their balance sheets. PIOC has increased its cement manufacturing price by 6.4 per cent, from PKR1175 per bag to PKR1250/bag. This adjustment is attributed to passing on the impact of axle load. Retention price after a recent hike in cement price now stands at PKR15,250t.

Significant data
PIOC’s market share has reduced to 9.7 per cent in FY22-23 from 9.1 per cent in FY21-22, no reason has been cited. PIOC’s focus is on improving retention prices rather than volumes. PIOC’s coal mix is 71 per cent local coal and 29 per cent Afghan coal. PIOC’s power reliance on the costly grid is only about 4-6 per cent, and the rest of the power requirements are met by in-house power generation. 

Pakistan has the lowest cement consumption at 143kg per capita, compared to 250kg per capita in India and 301kg per capita in Thailand. Considering Pakistan’s population growth rate, cement demand is expected to grow at 5-6 per cent in the long term.

The company reported earnings of PKR933m, up by 60 per cent YoY in 1QFY23-24. Due to improved retention and low coal prices, the company’s gross margins improved to 30.4 per cent in 1QFY23-24 from 22.9 per cent in 1QFY22-23.

At Khushab in Punjab, Pioneer Cement Ltd has a production capacity of 5.454Mta.