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Dangote leads cement market share of sales by 71%

Jun, 27 2012

(Nigeria)  --  A research by ARM investment managers, has revealed that Dangote Cement Plc now accounts for 71% market share of cement sales in Nigeria.

This is coming not long after, Dangote Cement Plc (DCP) significantly increased domestic installed capacity from 8MMT in Full Year 2011 to 19MMT in H1 2012, after the completion of its 6MMT Ibese plant and, more recently, the 5MMT Obajana expansion during the period.

According to ARM, research,.”The company also recently announced that it had settled contentious issues around land rights at its Cameroon plant and has resumed work on the site scheduled to be  completed in Q3 2013.” With these, the company’s ambitions of becoming Africa’s dominant player in the cement space, with target pan-African installed capacity of ~46.3MMT by 2015--and 19MMT (41%) already on stream--appear to be on course. If met, this target assures a dominant presence and diversified operations across a region that promises rapid demand growth and relatively high prices.

Demand growth for cement in SSA cement estimated at ~10 percent p.a. through 2020 to 154MMT, well ahead of the 5.5 percent global average.
Despite ongoing expansion, DCP still maintains strong operating metrics. Q1 2012 sales stood at N64.1 billion, a 17.6percent Year- on-Year rise, which nevertheless fell slightly short of our N66.1 billion forecast on account of delays in the completion of the now launched Obajana (5MMT) and Gboko (1MMT) plant expansions.

However, DCP still maintain the highest margins of virtually any industry in Nigeria with gross, pre-tax and net profit margins of 57.2percent, 47.3percent and 47.3 percent respectively.

ARM research further stated that, as these expansions highlighted have come on stream, the cash flow impact has helped to boost the company’s ability to cover its short-term obligations. Its estimated liquidity ratios for FY2012 (Current ratio) has risen from 0.73 for FY 2011 to 1.55 in FY2012.  Efficiency is also on the increase; we estimate that fixed asset turnover ratio will increase from 0.52 in FY 2011 to 0.63 FY 2012. The gradual realisation of promised capacity additions over the past year and half and its impact on cash-flows introduces greater certainty into our forecasts and has leads to a progressive reassessment of our required cost of capital.

“Our previous FY2012 forecasts had incorporated slightly earlier timelines for production launch at the newly commissioned plants, which were eventually launched this June.  We also revise timelines for the yet-to-be completed Gboko expansion, which was previously scheduled for H1 20122”.  In addition, we cut our revenue forecasts from the 1.5MMT Senegal plant  which we had expected to, come on stream Q2 2012, but is not yet producing commercial quantities, according to management, who also put imports at 141,000 MT in Q1, relative to our 450,000MT forecast. Management reports that importation has now ceased though we couldn’t ascertain if this was to be a permanent feature in the company’s operations—we assume it is. These revisions to our production—and initial running capacity—estimates lower forecast of  FY2012 sales by ~9.6% to N380billion implying a 66 percent Y-o-Y growth in revenues, down from ~76% earlier.

DCP plans further increases in its domestic capacity to ~32MMT (Obajana plant expansion: 3MMT, Ibese plant expansion: 6MMT and 3MMT Greenfield plant in Calabar) by 2015.

On the costs side, media reports and our discussions with management and industry sources suggest that a simmering natural gas shortage problem continues to plague DCP (and other cement makers’) operations, necessitating increased use of more expensive LPFO.  We now believe these gas supply problems could persist into the medium term and adjust our estimates accordingly, revising forecast energy costs higher across the industry. For DCP specifically, we use the corresponding margin impact in Q1 figures, where the company faced similar problems, as the baseline for adjusting forecast margins over the next three years.

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