Cement: Fiscal Year 2012’s first half profits more than doubled

ISLAMABAD: With most of the cement manufacturers posting robust earnings during 1HFY12, cement sector is back in limelight at local bourses. The sector has rallied by 25% in 2012YTD outperforming KSE 100 index by 15%, says a press release issued here on Tuesday.

Compiling the 1H results of 6 companies which have announced their results, overall profitability of the sector grew by impressive 2.2x. These 6 companies contribute 68% of the listed cement sector (by market capitalization).

Robust gross margin driving earnings growth

Thanks to robust gross margins, (up 6pps to 30%), overall earnings of the sector grew by impressive 2.2x during 1HFY12. Where overall net sales of the sector grew by 32% to Rs38bn, manufacturing cost grew by 22%. Major reason behind 32% growth in top-line is higher cement retention prices which grew from average Rs228 per bag last year to approx. Rs315 per bag primarily due to the pricing consensus amongst the manufacturers.

On the other hand, coal, which is the major cost component in manufacturing cement, its prices grew by an average 17%. Besides coal, higher prices of furnace oil (mainly used in power generation) also resulted in higher production cost.

Being one of the high leverage sectors, financial cost grew by hefty 33% to Rs2bn which also include exchange losses on import of coal due to 1.8% variation in Pak-rupee against the dollar.

DGKC & Cherat posted huge growth

Recent results showed that most of the companies posted profits as mentioned in the table. DG Khan and Lucky Cement, the two heavy weight companies contributing around 25-28% of the total cement sales, posted robust 1H EPS of Rs2.92 and Rs9.33. However, the former includes one time impact of around Rs0.6 per share due to tax benefit availed in 2QFY12.

On the other hand, Fauji and Thatta Cement, despite better overall margins, posted losses in 1HFY12. Fauji Cement posted losses due to lower utilization of its new 2.1mn tons capacity due to power outages, meager demand and financial charges which were previously being capitalized. While Thatta cement remained in red due to lower volumetric sales (approx 20% expected) specially in the local market where cement prices grew sharply.

Leave a Reply