Thatta Cement Plans to Double Capacity as Pakistan, Overseas Demand Rises

Thatta Cement Co., Pakistan’s smallest maker of the building material, plans to double capacity to take advantage of rising demand at home and overseas.

“We plan to increase capacity within 24 months and that will lead to a rise in sales,” Chief Executive Officer Muhammad Fazullah Shariff said in an interview yesterday at his office in Karachi. Thatta Cement will spend 3 billion rupees ($35 million) to raise production to 3,000 tons a day from 1,500 tons, he said.

Pakistani cement makers are benefiting from a growth in sales in their domestic market and from exports because of lower capacity in markets such as Sri Lanka, Africa and the Middle East. Sri Lanka’s $41 billion economy may grow 7 percent in 2010, Sri Lankan Deputy Finance Minister Sarath Amunugama said in his budget speech last month.

“We are more focused on exports to Sri Lanka where we get a better price for the product,” said Shariff. “Almost half of our exports go to Sri Lanka.”

According to Thatta Cement’s estimates, there is an annual shortfall in cement supply of about a million tons in Sri Lanka. Demand may increase by as much as 25 percent a year.

“Higher capacity will help smaller cement companies to compete with bigger players in the market,” said Sana Abdullah, a research analyst at IGI Finex Securities Ltd. in Karachi. “With strong growth prospects for exports, smaller companies will also benefit.”

Biggest Producer

Lucky Cement Ltd. is the country’s biggest producer by capacity and sales, and D.G. Khan Cement Ltd. is the second biggest.

Thatta Cement will also build a power plant within fifteen months with a generation capacity of 15 megawatts a day and sell surplus power to the government, Shariff said.

Thatta Cement may borrow from banks and sell shares to existing shareholders to raise funds for the expansion, he said.

Pakistan’s cement makers sold 34.2 million metric tons of the building material in the year ended June 30, up 9.3 percent from a year earlier, according to the All Pakistan Cement Manufacturers Association.

Domestic sales were 23.53 million tons, compared with 20.53 million tons a year earlier. Exports totaled 10.65 million tons, down from 10.75 million tons a year earlier, according to the association.

‘Temporary Slowdown’

“The export slowdown seems temporary,” Shariff said. “As the global economy revives, demand from overseas will increase.”

The Pakistan government will spend 663 billion rupees on building bridges, roads and other infrastructure in the year that began July 1, 38 percent higher than last year’s revised budget, Finance Minister Abdul Hafeez Shaikh said at a news conference in Islamabad on May 28.

This will boost demand for cement and other building materials, Shariff said.

Thatta Cement share rose 5.6 percent to 19.25 rupees as of 1:02 p.m. on the Karachi Stock Exchange. The stock has fallen 8.2 percent this year compared with a 7.6 percent increase in the benchmark KSE100 Index.

Thatta Cement had a loss of 102 million rupees in 2003, before it was sold the following year by the government to Arif Habib Group, a financial services and industry company.

The company had profit of 204 million rupees in 2009, compared with 39.5 million rupees a year earlier. Arif Habib Group holds a 71 percent stake in Thatta Cement.

Pakistan’s cement makers have capacity to produce 45 million tons of the building material, meaning there are risks attached to the company’s plans should overseas demand wane, Shariff said.

“We will only benefit from the capacity expansion when there is growth in demand from overseas,” said Shariff. “There is a big surplus in production in Pakistan compared with local demand.”

To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan at Fsharif2@bloomberg.net.