Ever since hitting rock bottom in FY11, the country’s cement sector has witnessed a reversal in fortunes, said market analysts. “Improved margin scenario backed by higher retention prices and lower coal cost coupled with reduced interest rate environment reflected positively on sector’s profitability,” said the analyst at Tolpine Research.
During 1HFY13, they said, the sector posted profit growth of 209% to Rs16.4bn as against Rs5.3bn during the same period last year. Our sample includes 15 companies that represents 95% of listed cement companies’ market cap.
During the period under review, cement sector posted topline of Rs82.6bn as against Rs68.0bn in the same period last year, depicting growth of 21%.
The prime growth driver remained 17% escalation in price of the commodity as estimated net retention prices rose to Rs310 per bag verses Rs266 in 1HFY12. In addition, 4% volumetric variance also played its due role with high margin domestic dispatches rising by 10%. Exports on the other hand declined by 7%.
Support to profitability also came from 24% decline in coal prices that account 40% for sector’s production cost. Subsequently, gross margins improved by significant 9pps to 36% in 1HFY13 as against 27% in same period last year.
Lastly, reduced interest rate also boded well for sector’s profitability. As 450bps reduction in the policy rate by central bank from June 2011 culminated into 32% reduction in the financial charges of the sector to Rs4.2bn. Reduction in financial charges coupled with follow through impact of topline growth has strengthened sector’s interest coverage ratio to 6x.
Among all participants, big players like DGKC, BWCL and LUCK stood out, having cumulative share of 57% of sector’s bottom-line. Profitably of DGKC grew by 128% or Rs1.6bn, while BWCL post bottom-line growth of 202% or Rs1.4bn and LUCK’s profits were up by 42% or Rs1.2bn. However, MLCF and FCCL remained the prime performers successfully turned their respective losses of Rs223mn and Rs50mn during same previous year into profits of Rs1.4bn and Rs0.9bn respectively during 1HFY13.
