The poor state of housing and road infrastructure has helped to push demand for construction materials, thereby bringing about tremendous growth to companies in the building and industrial goods sector.
The country’s rapid rate of urbanisation, which stands at 51 percent, according to United Nations (UN) estimates, is pushing demand for cement and dominant players in this sector are benefiting, as 2013 third-quarter revenues soared.
Building and construction, the second-fastest growing sector in Nigeria, grew by 14.31 percent in Q3’13, while the real estate sector has also sustained double-digit growth at 10.35 percent, according to Meristem Securities Limited, a research firm.
“The introduction of the Mortgage Refinancing Corporation is expected to give a further boost,” said Ronke Akinsola, an analyst at Meristem, in an email statement. “These companies will likely continue to record impressive revenues.”
Some industry analysts are of the view that the stellar performance of the companies in this sector could further be consolidated if infrastructure, particularly power, improves, which will spur the real estate market as industrial, commercial and residential construction needs rise.
Four dominant players in the industrial goods sector – Dangote Cement plc, Lafarge Wapco plc, Ashaka Cement plc, and Cement Company of the Northern Nigeria (CCNN) – achieved double-digit growth rate in revenues as at the third quarter of last year. Their unaudited results for the nine months ended September 30, 2013 showed they collectively rose revenue by 21.7 percent to N392.17 billion from N322.20 billion recorded in the corresponding period of 2012.
“The growth in the economy has a positive rub-off on demand for cement, being a major input,” said Rasaq Abiola, lead analyst at UBA Capital, a Lagos-based financial and investment firm, in a telephone interview with BusinessDay. “Increased local production capacity should support the demand growth momentum.”
Also in Q3’ 13, Dangcem, Wapco, Ashaka and Cement (CCNN) collectively grew profit before tax (PBT) by 36 percent y/y to N174.83 billion from 128.3 billion in Q3’12.
The efficiency of plants, coupled with relatively-cheap gas supply (a cleaner and cheaper alternative energy source to LPFO), cheap labour and uninhibited access to limestone, guarantees the sustainability of the strong operating margins of the cement producers, according to industry analysts.
Dangote Cement depends on gas at both Obajana and Ibese and has two fuel sources possible at each site, which has led to improved efficiency and higher margins.
“As some manufacturers commence usage of cheap fuels such as coal, while the gas-users record higher utilisation rates, and supply efficiency improves, profitability in the sector will only rise further,” said an industry expert who craved anonymity.
In 2012, the Nigerian cement industry overtook South Africa’s to become the largest cement producer in sub-Saharan Africa (SSA) and the third-largest in Africa, according to Renaissance Capital, an investment firm, in a note released on November 25, 2013.
“We believe Nigeria will maintain this position as manufacturers continue to invest over the medium term,” said Roy Mutooni, research analyst at Renaissance Capital. “We expect market capacity in the country to peak in 2020 at just under 50 million tonnes per annum.”
BALA AUGIE
