Cement sector records 1,492pc growth

[Naveed Yaseen]

KARACHI: After witnessing substantial growth in all three quarters of FY09, cement sector concluded FY09 with a handsome growth of 1492 per cent YoY. Higher retention prices (up 59 per cent YoY) and high rupee based export sales amid rupee depreciation (20 per cent YoY) drove profits up north, JS Research said in its report on Tuesday.

“However, this growth is magnified, as FY08 was an abnormally low profit period for the sector,” the stated.

Moreover, the performance is skewed towards large players with export potential as profitable companies in both years posted increase of just 109 per cent, JS Research said.

“Our sample includes 12 out of the total 21 listed companies representing approximately 80 per cent of the market capitalization of the cement sector,” the report said adding, “Moreover, we have removed one time gain (Rs815mn) recorded by Lafarge Cement for extinguishment of deferred liabilities for custom duties and sales tax in FY08.”

The massive earnings growth has been largely due to price arrangement between companies during the period. However, with the arrangement coming to end in August, margins for the cement companies are likely to remain tight during the first quarter of financial year 2010.

Moreover, dispatches have also been disappointing in the said period due to low public sector development projects and private sector’s subdued activity amid holy month of Ramazan.

However, lower financial charges due to declining interest rate scenario may give some room for breather.

JS Research said that the cumulative profitability of its sample companies in FY09 stood at Rs6.2bn (US$78.2mn), compared to Rs386mn (US$6.2mn) depicting a massive growth of 1492 per cent. Companies with profits in both the years posted 109 per cent earnings improvement.

Though total dispatches were down 2 per cent, net sales grew by 55 per cent to Rs101.4bn (US$1.3bn) on the back of higher net retention prices (up 59 per cent YoY) and improved export based revenues. Cost of sales/ton also rose by 33 per cent YoY amid higher realized coal prices and inflationary pressures.

Resultantly, gross profits were up 189 per cent with gross margins improving by 1,383bps to 30 per cent.

Financial charges rose to Rs10.6bn (up 2477 per cent YoY), were a massive burden for the cement companies during the year due to monetary tightening. Average six-month KIBOR for FY09 was recorded at 14.14 per cent, up 364bps from year earlier. Consequently net margins only improved by 548bps to 6 per cent, as net profits of our sample companies jumped north 16 times, the report concluded.

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