KARACHI: The cement companies listed on the stock market posted cumulative net profit at Rs12.7 billion in the second quarter (Oct-Dec) of this fiscal year, a growth of 41 per cent from Rs9bn in the earlier quarter (July-Sept) of 2014-15 (QoQ).

The earnings grew due to several positive developments including: strong local demand; falling input costs; declining financial charges due to smooth deleveraging; increase in ‘other income’ and finally lower effective tax rate.

“Cement manufacturers enjoyed net margin of 24pc, which is the highest in the preceding nine quarters,” says Nabeel Khursheed at brokerage Topline Securities.

Over the first half (July-Dec) of fiscal year 2014-15 (FY15) cement sector posted a growth of around 15pc in net profit to Rs22bn over Rs19bn net earnings in 1HFY14 (YoY).

The brokerage report was prepared on the basis of 14 out of 19 listed companies which represented 94pc of the total listed cement companies’ market capitalisation. DNCC, DBCI, FLYNG, LPCL and ZELP were not added.

PIOC, DCL, DGKC, FCCL and MLCF were the star-performers, depicting bottom-line growth of 150pc, 99pc, 93pc, 77pc and 63pc, respectively. The cement market leader LUCK showed earnings growth of 10pc.

The start of some major construction projects spurred demand for cement, enabling the sector to post top-line growth at 10pc in 2QFY15 to Rs53.3bn against Rs48.5bn in 1QFY15. The prime growth driver was an increase of around 16pc in local cement dispatches to 7 million tonnes in 2QFY15 against 6m tonnes in 1QFY15.

Exports, however, declined by 2.6pc to 2m tonnes from 2.06m 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,” analyst Nabeel noted.

Higher local sales and declining international oil and coal prices resulted in lower manufacturing cost, as energy constitutes 55-60pc of the total cost. As a result, sector’s gross profit margins improved by 240 basis points to 36pc in 2QFY15. Moreover, reduction in the leverage of the cement sector translated into 24pc reduction in financial charges to Rs854m.

Published in Dawn March 4th , 2015

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