FY20 to remain challenging for cement sector in Pakistan

Pakistani cement companies are scheduled to announce their 4Q annual results ended 30 June 2019. Mixed financial results are expected, despite two companies (Lucky Cement and Attock Cement) having reported a fall in profit earlier this week.

However, various research house reports suggest that the stagnant cement demand in a fragile domestic economy continues to damage company profitability during 4QFY19. The rise in interest rates, utilities, transportation and depreciation expenses are driving up cost of doing business, with the current economic slowdown and capacity expansion scenario restricting companies to pass on cost impact.

Dispatches in FY19
According to the reports, during FY19, export cement dispatches posted a massive growth of 37.5 per cent YoY to 6.53Mt as compared to 4.75Mt in the same period last year.

However, local dispatches lowered by 3.7 per cent YoY to 39.6Mt as compared to 41.1Mt in FY18. Regional comparison reveals that northern region registered a decline of 17 per cent in dispatches and stood at 30.8Mt in FY19, while south region's dispatches grew by 24 per cent YoY to 10.96Mt. Boom of construction activity coupled with better economic conditions paved the way for rising cement dispatches during the this period.

Outlook: FY20 to remain challenging for cement sector
Spectrum Securities Ltd expects volume growth to remain subdued during FY20 as construction sector is in under influence by economic slowdown, higher interest rates and tight scrutiny over real estate business. The sector also facing tough competition on prices as rising production capacity and slow demand restricting companies to pass on high cost to consumers. However, cool-off in coal prices and cement price hike would remain the major drivers for earning.