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Sri Lanka’s Tokyo Cement ends the third quarter of FY21 with Rs. 13 billion turnover

Sri Lanka’s Tokyo Cement ends the third quarter of FY21 with Rs. 13 billion turnover

The Morning: Tokyo Cement Group (Tokyo Cement) reported its financial performance for the third quarter (Q3) ending 31 December 2021, with a turnover of Rs. 13,771 million reflecting a year-on-year (YoY) growth of 20%, compared to Rs. 11,456 million during the same period last year (2020).
The group recorded Rs. 1,986 million profit before tax (PBT) for the third quarter, a 38% growth against Rs. 1,442 million for the same period last year, whilst recording a profit after tax (PAT) of Rs. 1,649 million as against Rs. 1,303 million during the same period last year.
Despite a turnover growth, Tokyo Cement’s sales volumes reduced by 3% compared to the third quarter last year due to supply chain shortfalls.
The increase in cost of production due to increased freight and raw material costs, and currency depreciation, led cement manufacturers to increase the retail price of a 50 kg bag of cement to Rs. 1,275 with effect from 7 November 2021. This 16% increment of price in a period of three years (against the maximum retail price [MRP] of Rs. 1,095 in 2019) is denoted the lowest price increase across any building material, despite significant cost increases during the same period. Further freight and raw material cost hikes increased the price of a 50 kg bag of cement to the current retail price of Rs. 1,375 as of 1 January 2022.
Unlike the preceding quarter, this quarter did not see any lockdowns or strictly enforced travel restrictions, allowing for businesses to operate relatively uninhibited. However, the country experienced unusually heavy and persistent wet weather conditions throughout October and November which slowed down construction-related activities.
During this quarter, Tokyo Cement saw a scarcity of many construction essentials, from cement to steel to tiles, to all types of building materials and household accessories, due to the delays in opening letters of credit (LCs) because of forex illiquidity. This shortage of construction materials in turn led to project delays and idle labour, and therefore additional project expenditure.
This situation was compounded by finished cement importers drastically cutting down importation due to heightened fiscal barriers, thus resulting in a severe market shortage. While Tokyo Cement enforces the MRP with its retailers, the scarcity of cement has allowed for a secondary market to emerge in which cement is sold beyond the labelled prices.
The 3% drop in sales compared to the third quarter last year came as a result of multiple restrictions on the company’s output. Delays in opening LCs in a timely manner inhibited the continuous supply of both raw material for production as well as the importation of cement as a finished good. On the other hand, Tokyo Cement’s local production process had a minor setback due to a breakdown of a cement grinding mill for a period of more than two weeks towards the end of Q3.

However, to ensure an uninterrupted supply to the market and compensate for reduced local manufacturing output, the company increased cement importation by 20% during the third quarter compared to the same quarter last year, importing not only bulk cement but also bagged cement to satiate market demand.
Despite a very challenging market environment, Tokyo Cement was able to maintain its market share of 35% during the third quarter of this year, similar to what was held the previous year.

OSL take:

The impressive turnover recorded by Sri Lanka’s Tokyo Cement is indicative of the strength and growth of the country’s private sector as well as the growth in the construction industry. The country’s ongoing aggressive development agenda as well as the country being positioned as a growing business destination in the South Asian region have all expanded Sri Lanka’s construction industry. There has been an overall increase in the growth of Sri Lanka’s real estate market. Foreign businesses/investors could confidently explore the growing opportunities in Sri Lanka as the country’s economy has shown great resilience to external and internal challenges through the years and even during the pandemic.

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Article Code : VBS/AT/18022022/Z_4

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