Pakistan industry first-half profitability improves

A number of Pakistan cement manufacturers and exporters have posted profits after tax for the first six months of the current fiscal year against losses reported in 1HFY2011. The rise is attributed to significantly improved retention prices and alternative energy resources.

According to a financial review by Invest Capital Markets Ltd, out of 16 companies (representing 96 per cent of the sector’s market capitalization) most reported a profit. The sector reported an impressive turnaround in 1HFY12 performance and registered PKR5.2bn (US$57.14m) in bottom-line against a loss of PKR1.6bn in the same period last year.

The sector’s sales advanced 33 per cent YoY to PKR70bn for the first half compared to PKR53bn the year before. It also enjoyed a 38 per cent YoY increase in prices during the period (net retention prices improved by an average 28 per cent YoY).

In terms of company performance, Lucky Cement’s share in the sector’s profits shrank to 58 per cent in 1HFY12 against 88 per cent last year as other, smaller loss-making manufacturers also achieve profits this time around (10 companies reported a profit compared to only four last year.)

In this regard, DG Khan Cement posted significant growth in its first-half earnings which jumped 566 per cent YoY to PKR1.28bn and doubled share of sector profit to 24 per cent. Bestway Cement (which contributed 14 per cent of the industry’s profit) also saw a turnaround in the bottom line from losses last year, followed by Kohat Cement and Attock Cement with 11 and 10 per cent share in the sector’s profits against -4 and eight per cent last year, respectively.

Despite the slow recovery in local dispatches (up 8.3 per cent YoY) and subdued export demand (down 4.6 per cent) the sector’s profitability was well-suppored by Cherat, Dewan, Pioneer and Mustehkum as they all reported profits in 1HFY12.

In terms of cement sales during the period, local dispatches in the northern region (which accounts for 84 per cent of total capacity) contributed 79 per cent of industry dispatches. These include 8.9Mt of domestic sales (up six per cent YoY) and 3.3Mt of exports (up three per cent YoY).

Domestic sales in the southern region were 1.9Mt (up 19 per cent YoY) and exports were 1.2Mt (down 20 per cent YoY).

Demand from Afghanistan and India continued an upward trend while demand from other destinations remained sluggish. Therefore, the impact of higher retention prices played a major part in the sector’s first-half bottom line turnaround story despite huge increases in operating expenses (120 per cent YoY) and financial charges (13 per cent YoY).