Growing demand side favours firms for expansion plans

Growing population in the Sultanate calls for the need for growth in infrastructure and is also driving private consumption. Oman’s population has been growing steadily in the recent years, reaching 4.15 million by the end of March this year and it is projected to grow by 3.5 per cent annually.

Government’s focus on tourism, development of special economic zones etc, along with increasing working population has created need for basic amenities like residential and commercial units, healthcare facilities and transportation.

This encourages local companies to expand their operations and these expansion plans will help them to cater to the domestic demand as well as to tap opportunities arising from regional markets. Rapid industrialisation in the country is resulting in increasing demand for water.

According to Oman Power and Water Procurement Company, demand for water in Oman is projected to grow by six per cent per annum in the seven year horizon, from 221 million cubic metres (equivalent to 58.3 billion imperial gallons per annum) in 2014 to 328 million cubic metres (86.6 billion imperial gallons per annum) in 2021 in the main interconnected zone.

In order to meet the increasing demand for water, capacity expansions from utility companies in the Sultanate are expected.

The leading player in power generation and water desalination space, ACWA Power Barka has already completed first phase of the expansion plan in July last year and is now delivering a total of 30 Million Imperial Gallons per Day (MIGD) water to the national grid.

The second phase of the project to build a 12.5 MIGD seawater reverse osmosis plant is under way and is likely to start operations in the third quarter of 2015. Rising population in the Sultanate has led to increase in consumption, supporting the food and beverage industry.

Though there are indigenous players in the local market, there exists a demand supply gap which provides scope for expansion of capacities for the local players.

Leading poultry meat producer and distributor in the Sultanate, A’Saffa Foods is in the process of setting up a table eggs project with a capacity to produce 100 million table eggs per annum.

The company is also investing in two new projects relating to production of white meat and organic waste and fertiliser from the residue obtained from poultry farms.

Another player in the industry, Sohar Poultry Company also has plans to expand its broiler farm, increasing its capacity by about 40 per cent. Also, Gulf Mushroom Products that owns the largest hi-tech mushroom farm, aims to double its capacity from the present 9,000 kg per day, owing to strong demand in Middle East and Asia-Pacific regions.

The company is investing RO 6 million in the project and has signed contracts with plant vendors for supply of machinery.

Oman Refreshments, a leading soft drinks company has also set up a new production line with a capacity of 18,000 bottles per hour as the company expects the demand for carbonated soft drinks to increase at a compound annual growth rate of 8.3 per cent over the next five years.

Demand for building materials in the region is also on the rise on the back of investments in infrastructure sector coupled with big ticket projects like Fifa World Cup 2022 in Qatar, Dubai’s Expo 2020 and large construction projects in Kingdom of Saudi Arabia.

Listed players in the building materials space in Oman like National Aluminium Products, Al Anwar Ceramic Tiles, Al Maha Ceramics and Al Jazeera Steel Products are thus in the process of increasing their production capacities.

National Aluminium Products, the only listed aluminium extrusion company in Oman, is presently implementing a RO 7 million expansion programme to double its extrusion capacity from the current 18,000 metric tonnes.

To tap the increasing demand for ceramic tiles, one of the oldest ceramic tiles manufacturers, Al Anwar Ceramic Tiles is in the process of setting up its sixth production line, increasing its output to about 23 million square metres per annum by the end of 2015.

Likewise, the recently listed Al Maha Ceramics also plans to boost its capacity in two phases by 120 per cent to 13.6 million square metres of ceramic tiles per annum.

In order to tap the growth in demand and to broaden its product spectrum, Al Jazeera Steel Products is in the process of completing its new rebar production line and is likely to commence operations in the second quarter of this year. The company expects to generate additional volumes of 4,000 to 5,000 metric tonnes of rebar products every month.

Thus, thriving demand offers immense growth potential to the local players operating in the above sectors and these companies are likely to benefit from the capacity expansions in the coming years.

The growth in profitability is likely to be reflected in the market going forward, rewarding value investors.

SOURCE: OMAN DAILY OBSERVER

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