The major cement firms reported fall in profit during FY19, says a report of Spectrum Securities Ltd. The research house report made on the review of eight top companies: DG Khan Cement, Fauji Cement, Cherat Cement, Maple Leaf Cement, Bestway Cement, Khoat Cement, Attock Cement and Fectc Cement.
The report added that during FY19, net income of the cement sector posted a considerable decline caused by fragile country's economy, higher interest rate and end of tax benefits. It was pointed out that an immense decline of 41 per cent in net profit during FY19, similarly, in 4QFY19 a huge 93 per cent YoY drop posted in net profit.
The profit declined despite these company's net sales increased by 10 per cent YoY/14 per cent YoY in FY19/4QFY19 on better cement prices and dispatches, which increased by eight per cent YoY and two per cent YoY, respectively.
However, gross margins of the cement sector dropped in FY19 given rising depreciation cost on capacity expansion and PKR devaluation (25 per cent YoY), while coal prices declined as it weakened by eight per cent YoY to US$87/t in FY19. Massive expansion in cement industry pushed up the finance costs drastically, increasing by 182 per cent YoY to PKR7.98bn in FY19.
The cement sector expanded its capacity by 5.13 per cent YoY to 59.43Mt in FY19. However, the capacity utilisation was at 78.89 per cent as compared to 85.87 per cent in FY18. The current capacity expansion seems unfavourable for the sector according to the current economic scenario of the country.
Outlook
Analysts foresee that cement sector will continue to face low demand challenge in the future due to a slowdown in the economic activities in the country and statutory requirements imposed by the government to the construction industry. Cement demand is highly dependent on the development projects, dams and the public housing scheme. Experts anticipate that, the cement industry will find its way towards recovery by FY21.
