The profits of cement companies have increased seven times in FY12 to Rs 16 billion or $168 million due to robust increase in cement prices that witnessed a growth of 26 percent during the year. Interestingly, out of 10 companies which have announced their full year results, only one has posted losses in FY12 whereas last time almost 50 percent of the cement companies were in losses. Thus, better cement sector outlook and turnaround in FY12 led cement sector posting 119 percent return during 2012YTD as well.
“Our sample includes 10 cement companies, representing 76 percent of market capitalization, while the rest have not yet announced their full year results. We have excluded Javedan Corporation because being non operational during FY12,” said Topline, Analyst, Farhan Mahmood.
The analyst said one of the turnaround stories for cement manufacturers in FY12 was sharp rise in local cement demand which led to improvement in cement prices at local arena. This led to handsome increase in total revenues by 33 percent to Rs123bn ($1.3bn). Where local volumetric sales remained higher by 9 percent to 24mn tons in FY12, local cement prices improved by an average 26 percent during FY12. However, total sales during FY12 (local + exports) stood at 32.6mn tons, up 4 percent. Thus, despite energy cost (higher prices of oil prices & gas), cement manufacturers’ remained comfortable with gross margin increasing by 7pps to 30 percent during FY12. However, 17 percent increase in financial charges to Rs8.7bn amid currency devaluation and higher borrowing (particularly in 1H) slightly diluted bottomline. “Thanks to sharp rise in cement prices, profits of Kohat cement grew by massive 26 times followed by DG Khan Cement (up 24 times) whereas most of the companies which had operational issues due to high cost of production and high leverage, their losses turned into profits in FY12,” said Farhan.
