Cement makers earning expand 40pc in H1 on construction boom

KARACHI: Backed by strong local demand and reduced input costs, cement manufacturers listed at the Karachi Stock Exchange (KSE) posted over 40 percent growth in their net earnings in the quarter ended December 31, a local brokerage house reported on Tuesday.
Other factors that helped companies post attractive earnings included decreased financial charges, increased other income, and lowered effective tax rate, said analyst Nabeel Khursheed at Topline Securities. “...cement manufacturers posted net margin of 24 percent, which is the highest in the last nine quarters,” he said.
The brokerage house studied profit and loss accounts of 14 companies which represented 94 percent market capitalisation of the sector at the bourse. There are total 19 listed cement manufacturers at the bourse.
The companies booked cumulative earning of Rs12.7 billion in the quarter as compared to Rs9 billion in the previous quarter ended September 30, Khursheed said.
Pioneer Cement, Dewan Cement, DG Khan Cement, Fauji Cement, and Maple Leaf Cement were the star-performers, depicting bottom-line growth of 150 percent, 99 percent, 93 percent, 77 percent, and 63 percent respectively.
Market leader Lucky Cement depicted bottom-line growth of 10 percent.
The brokerage houses did not consider the companies which either have not announced financial results for the quarter or incurred losses. Such companies include Dandot Cement, Flying Cement, and Lafarge Pakistan Cement.
Khursheed said with the start of mega construction projects, cement sector posted a growth of 10 percent in the quarter at Rs53.3 billion against Rs48.5 billion in the previous quarter.
“The prime growth driver remained 14 percent rise in local cement dispatches as it rose to seven million tonnes in 2QFY15 versus six million tonne in 1QFY15,” he said.
Exports however declined by 2.6 percent to two million tonnes versus 2.06 million tonnes in 1QFY15 due to lower dispatches to Afghanistan. “Going forward, higher disposable income, due to lower inflation, should help increase private expenditure on construction and housing as evident from mega housing schemes launched by Bahria, DHA, and UAE’s Emaar.”
Khursheed said declined international oil and coal prices have resulted in lower manufacturing cost for cement manufacturers as energy constitutes 55-60 percent of total cost of goods manufactured. As a result, sector’s gross profit margins improved by 240 basis points to 36 percent in 2QFY15. Moreover, reduction in the leverage of the cement sector translated into 24 percent reduction in financial charges to Rs854 million.
“With economic recovery in Pakistan, we expect average GDP to grow at 4.5-5.5 percent in the next three years, which can lift local cement sales by nine percent on average annually to reach 34.1 million tonnes per annum by fiscal year 2017 and exports to eight million tonnes per annum,” Khursheed added.