Cement industry profits are impacted by burgeoning financing costs

Spectrum Research has reported that sluggish economic activities lead to a decline in Pakistan's construction materials demand, mainly cement and steel. The higher inflation and low purchasing power primarily contributed to reduced cement dispatches. Moreover, the higher interest rate increases the financing cost and reduces the sector's bottom line. This would be reflected in the financial results of Pakistani cement companies when they announce 3QFY22-23 or 9MFY22-23 (July-March 2023) results at the start of April 2023. Three companies have announced results at Pakistan Stock Exchange (PSX) this week, depicting the same trend as predicted. 

DG Khan Cement Co Ltd 
DG Khan Cement has reported that its net profit after taxation was down by 41.6 per cent YoY to PKR2.11bn (US$7.52m) in 9MFY22-23 from PKR3.16bn in the same period last year. Its net sales increased by 11 per cent to PKR48.04bn from PKR43.29bn during this period. It incurred distribution expenses of PKR1.05bn against PKR1.520bn and administrative expenses of PKR645m compared to PKR552m in 9MFY-2122. The finance cost went up to PKR4.87bn from PKR2.45bn, up by 99 per cent YoY. 

Fauji Cement Co
In the 9MFY22-23 Fauji Cement Co Ltd earned a net profit after taxation, up by 30 per cent YoY to PKR6.96bn from PKR5.34bn. Its net sales increased by 35 per cent to PKR51.97bn from PKR38.40bn during this period. It incurred a distribution cost of PKR423m against PKR405m and administrative expenses of PKR1.13bn compared to PKR958m in 9MFY21-922. The finance cost went up to PKR2.07bn, up by 417per cent YoY. 

The company's greenfield expansion at the DG Khan cement site (2.05Mta) is expected to come online by the end of this year. Fauji Cement's solar power capacity of 29MW (8.6MW added at the Wah site) will increase to 40MW as another 11MW comes online at the Nizampur site by May 2023. As a result, up to 60 per cent of all power requirements will be met through solar or WHR power projects.

Maple Leaf Cement Factory Ltd 
For the 9MFY22-23  Maple Leaf Cement reported that its net profit after taxation was up by 41 per cent YoY to PKR5.05bn against PKR3.59bn in the year-ago period. Its net sales increased to PKR47.09bn from PKR34.09bn during this period. It incurred a distribution cost of PKR1.684bn against PKR1.078bn and administrative expenses of PKR1.053bn compared to PKR676m in 3QFY21-22 – a rise of 45 per cent and 55 per cent, respectively. During this period, finance costs rose to PKR1.748bn from PKR1.205bn, a difference of 45 per cent.