Pakistan: FY12 to be a fortunate year for the entire cement industry

Pakistan cement sector profitability is on the recovery path due to higher local dispatches and rising prices. Low-tier companies are also on the way of recovery. Researching domestic sector profitability for 9MFY12 by reviewing the accounts of the 17 companies representing 98% of the listed sector market capital, leading brokerage house InvestCap Research has suggested that FY12 to date could be considerate particularly good year for Pakistani cement producers.

The top line of the sector climbed 34% YoY on the back of substantial growth in domestic as well as export prices, which were up 8.2% and 25% YoY, respectively. In addition, decent growth in local cement demand (+8.4% YoY) more than made up for the decrease in export demand (-7.8% YoY). As a result, industry revenues surpassed the PKR100bn market to PKR109bn (+34% YoY) during 9MFY12.

Moreover, several efficiency measures, including waste heat recovery and the use tyre- and refuse-derived fuels, paid off in reducing input costs and combined with higher cement prices, led to a significant jump in cement companies’ gross margins. In addition, admin and selling expenses were also under control, posting decline of 2% YoY.

Operating profits of the sector posted a hefty increase of 166% YoY to PKR22.5bn during 9MFY12. Despite being one of the most leveraged sectors of the economy, the cement industry finance cost was only up by 10% YoY, partly due to decline in interest rates during 1HFY12 with a delayed impact on earnings. As such, the industry posted a post-tax profit of PKR10.8bn in 9MFY12 as compared to only PKR117m in 9MFY11.

According to InvestCap, Bestway Cement, Cherat Cement Company (CHCC), Dandot Cement Ltd. (DCL), Kohat Cement (KOHC) and Pioneer Cement (PIOC) also came into profit after losses during 9MFY11. Key sector giants including Lucky Cement, DG Khan Cement Company and Bestway supported the sector earnings well as they contributed 43%, 19% and 16%, respectively, to the sector’s bottom line during the period.

The InvestCap research suggests that export dispatches would increase in coming months due to the revival of exports to India by road and infrastructural activities in Afghanistan. Demand on the local front is also expected to continue the current upward momentum.