AKD Quotidian about — Cements: 1HFY13 profits almost equal to FY12 profits!

Karachi, March 06, 2013 (PPI-OT): 17 out of 20 listed cement companies have so far announced their IHFYI3 results where combined profits (ex-LPCL which reports on a CV basis) have tagged in at PkRI6.6bn vs. combined profits of PkRI8.9bn in FY12.

According to AKD Securities at this run rate, the listed cement space is on track to post stellar growth of 75% in full-year FY13, making the ongoing year the best ever for cement manufacturers by a distance! In this regard, while volumetric growth has been modest (4%Y0Y increase in 8MFYI3 cement dispatches to 21.2mn tons with lower exports countering domestic volumes), the robust increase in profitability has primarily emanated from margin expansion where the industry’s Gross Margin has risen to 36% in 1l-IFYI3 vs. 28% in FY12.

No wonder that the listed cement sector has gained 11%CYTD on top of the exceptional 151% returns in 2012 when sector profitability rebounded strongly from breakeven in 2011. While AKD Securities has a Neutral stance on the cement sector at present, AKD Securities will look to revisit AKD Securities investments case shortly. In the interim, based on annualized IHFYI3 EPS, FECTC, MLCF and P1CC appear to be the cheapest cement scraps.

Blockbuster year for Cements! If you thought FY12 (combined sector profitability of PkR18.9bn vs. combined profits of just PkR572 in FY11) was the apex for cement manufacturers, you couldn’t have been more wrong. In this regard, 17 out of 20 listed cement companies have so far announced their IHFY13 results where combined profits (ex-LPCL which reports on a CY basis) have tagged in at PkR16.6bn vs. combined profits of PkR18.9bn in FY12. For some companies such as CIICC, FCCL, MLCF, MUCL PIOC and AACIL, 1 HFY13 profits are more than their respective full-year FY12 profits.

It’s a margin game: Considering 8MFY13 total cement dispatches of 21 .2mn tons are up just 4%YoY (local dispatches up 7%YoY; exports down 4%Y0Y), margin expansion is the primary profitability driver where sector Gross Margin has risen to 36% in 1 HFY13 vs. 28% in 1I-IFYI2 on the back of higher cement prices and 20% decline in 1 HFY1 3 average coal price vs. the FY12 average. Another factor appears to be the lower interest rate environment coupled with lower gearing where full-year FY13F financial charges may tag in about 30%YoY lower compared to FY12.

While Feb’13 total dispatches of 2.61 mn tons are down 2%MoM, AKD Securities expects dispatches to depict a sequential uptick over the next few months on fast-track PSDP utilization. Over the medium-term, news reports pointing to possible PSDP allocation of PkR45Obn in FY14, up 18%YoY, flags a key positive.

Investment Perspective: Robust profitability has translated into steer stock price appreciation where the listed cement sector has gained 11%CYTD on top of the exceptional 151% returns in 2012. While AKD Securities has a Neutral stance on the cement sector at present, AKD Securities will look to revisit AKD Securities investments case shortly. In the interim, based on annualized 1 HFY1 3 EPS, FECTC, MLCF and P100 appear to be the cheapest cement scraps.

Leave a Reply