Pakistan cement companies show significant profits during 2QFY20

Pakistan’s top cement manufacturers recorded significant profitability with improved margins during the last quarter of 2020. The experts believe this trend is likely to continue in reaming quarters of the ongoing financial year. 

According to an analyst of Spectrum Securities Ltd, the cement sector’s profitability continued in 2QFY21 as the bottom line of the 13 companies on the Pakistan Stock Exchange (PSX) posted profits to the tune of PKR11bn (US$69.7m) as compared to PAT of PKR5bn in the preceding quarter.

The surge in profits is mainly attributed to the 11 per cent QoQ higher dispatches, the six per cent QoQ improvement in average retention prices and the decline in finance cost by 12 per cent QoQ. Furthermore, after coming online of new capacities, depreciation cost also declined. 

The 13 companies (out of 16), which represent 99 per cent of the sector's market capitalisation, include DG Khan Cement, Maple Leaf Cement Factory, Fuji Cement Co Ltd, Kohat Cement, Gharibwal Cement Ltd, Decan Cement Ltd, Attock Cement Pakistan Ltd, Bestway Cement Ltd, Cherat Cement Co Ltd, Lucky Cement, Pioneer Cement , Power Cement, and Thatta Cement Co Ltd.

In 2QFY21, these companies' gross margins clocked in at 25 per cent versus 19 per cent in 1QFY21 on higher dispatches and better retention prices. While the industry's utilisation stood at 91 per cent during 2QFY21 versus 86 per cent in 1QFY21.

Selling and distribution expense remained intact as exports declined by 15 per cent QoQ. During 1HFY21, exports to Afghanistan declined by 13 per cent YoY. The sector's finance cost reduced by 12 per cent QoQ on short-term deleveraging loans, as liquidity improved in the market. 

Average coal prices (FOB) stood at US$58/t (considered a two-month lag impact) during 2QFY21 compared to US$56/t in the previous quarter. At the same time, US$/PKR parity averaged at PKR161 in 2QFY21 versus PKR167 in 1QFY21. 

Outlook
The cement sector remained in the limelight during FY21TD on the resurgence in construction activities given government schemes and extraordinary tax relief and monetary relief by State Bank of Pakistan, which kept the cement demand intact. The expected strong demand encourages the existing manufacturers to enter into brownfield expansion.  

The Spectrum Securities Ltd analyst expects local cement demand to remain upbeat in the medium-term given the government and the private sector's infrastructure projects. Furthermore, the easing monetary policy would fuel up economic growth. The cement sector is highly leveraged, and experts expect that the low-interest rates will keep financial cost at a minimal level. In contrast, improved liquidity of the industry will result in lower working capital needs.