LAHORE: The expansion in economic activity and investment in infrastructure projects under PSDP and CPEC have encouraged the cement industry to invest over Rs250 billion for expansion of their production capacity to around 73 million tonnes from present capacity of almost 50 million tonnes.
According to a report of the central bank, the cement sector production capacity will register a growth of about 50 percent in next few years, adding about 24 million tonnes towards the production facility to reach around 73 million tonnes. The report said that the expansion may be even higher if other firms with 8 million tonnes in pipeline also join this campaign. The SBP has estimated that additional capacity would result in the imports of machinery of around $1.5 billion in next couple of years. In the cement industry, cost of machinery imports comes around 70 percent of total cost of the project. This means, the overall estimated cost of expansion would be around Rs 254 billion.
The report said that the industry benefited from a slump in global market for raw material like POL and coal and historic low domestic interest rates. Further gains to industry were achieved due to the economies of scale, improvement in cost efficiency, and a decline in the debt-to-equity ratio.
The report pointed out that healthy profit margin is another important factor that helps the industry to undergo capacity expansion. Specifically, the gross profit to sales ratio has averaged around 33 percent for the last five years.
It said that despite healthy cash position, industry’s borrowing needs will increase and cement sector has availed Rs34 billion for fixed investment purposes during 2016-2018. The low interest rates would encourage firms to borrow more from the banking system and the commercial banks would also be willing to take exposure on the industry due to a decline in infected loan ratio, and healthy balance sheets of cement manufacturing firms, the SBP said.
