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Power Cement Limited (POWER) has strategically leveraged the declining interest rates to lower its debt burden and significantly reduce financing costs, reports WealthPK.

This proactive approach has not only strengthened the company’s financial stability but also enhanced its ability to navigate market challenges, ensuring sustainable growth and long-term profitability. The company reported a 35.6% decline in finance costs in the second quarter of the ongoing financial year (2QFY25), saving Rs432 million compared to the same period of the previous year.

This improvement, driven by lower interest rates and increased liquidity support from sponsors, has strengthened the company’s profitability. Additionally, the company has enhanced its financial stability while creating room for further operational investments by actively managing its financial obligations and reducing reliance on short-term borrowings. The company posted a strong financial recovery for the half-year ending December 31, 2024, driven by higher selling prices and lower power costs.

Moreover, POWER’s financial turnaround has been driven by a sharp reduction in debt and improved operational efficiencies. The company cut its short-term financing from Rs6.27 billion in June 2024 to Rs2.45 billion in December 2024 through disciplined cash flow management and support from associated undertakings. Furthermore, long-term financing also declined slightly, reinforcing its commitment to financial stability. The company expects additional savings in finance costs, anticipating further interest rate cuts.

On the operational front, the company achieved significant cost efficiencies by utilising alternative fuels and optimising production processes, helping counter rising energy prices. Lower power costs and reduced government surcharges further strengthened gross profit margins, while recovering local demand led to increased domestic sales in 2QFY25. Despite strong financial gains, POWER faces industry-wide challenges as domestic cement dispatches declined by 9.4% year-on-year in 2QFY25 due to sluggish infrastructure activity and higher construction taxes.

However, the company offset some of this impact with a 31.69% increase in export dispatches, reflecting growing international demand for Pakistani cement. Additionally, capacity utilisation dropped to 68% from 76% in the same period last year, largely due to weaker local demand. Nonetheless, improving market conditions in 2QFY25 offers a positive outlook for a gradual recovery in the coming months. Therefore, POWER remains optimistic about its growth trajectory as Pakistan’s economic conditions improve.

The government’s efforts to lower energy costs and boost infrastructure development are expected to drive higher cement demand in the coming months. Hence, the company plans to capitalise on declining interest rates to further reduce its debt and improve liquidity while expanding its export footprint to meet rising global demand for clinker and cement. POWER is well-prepared for sustainable growth and profitability with a strengthening economic outlook and increased infrastructure spending.

Credit: INP-WealthPk