KARACHI, Aug 2: The 21 listed cement companies have posted an aggregate profit of Rs6.7 million for the third quarter of financial year 2002 (FY02), reflecting sharp recovery from losses of Rs266 million suffered in the first two quarters of the year.
The improvement in third quarter (Q3) cement sector profitability looks even brighter when compared with the mammoth industry loss of Rs812 million in the first half last year.
Industry analysts attribute the turnaround to a number of factors: cost savings due to conversion from furnace oil to coal; seasonal peak in offtake; effectiveness of the ‘cartel’ and finally, the change in accounting policies by certain companies in respect of provision for depreciation.
A sector analyst observed that cement offtake peaks in the third and fourth quarters, though how much of that may have contributed to profitability is difficult to ascertain. There was also marginal increase in output prices (due to the cement cartel) and the industry benefited greatly by switching from furnace oil to coal — as the low cost firing system of production.
Leaders among the cement producing companies in the country expect to have converted to coal by the end of the year, while Pioneer Cement’s coal firing plant has already begun operations from January 1, this year.
Humaira Zaheer, analyst at IP Securities stated that Pioneer had made significant loss recovery as its Q3 loss stood reduced to Rs14 million, compared with first half 2002 loss at Rs29 million and first half 2001 loss amounting to a huge Rs108 million. Humaira noted that Fauji, Fecto and Javedan also had reduced their losses to a large extent, which sparked optimism that those companies could post profit in FY03.
Analyst at IP Securities said that Pakland Cement had incurred huge losses of Rs115 million during fist half of 2002, but it managed to post profit of Rs21 million by the end of nine-month period of FY02. Some of the industry leaders had managed to post huge profits for Q3, analyst said, which made the overall sector results look good: After tax profit at Lucky Cement stood at Rs177 million; D.G. Khan: Rs121 million and Maple Leaf: Rs55 million. The three companies have considerable floating stock in the equities market.
The Karachi Stock Exchange lists 21 companies on the cement sector with aggregate paid-up capital of Rs24.3 billion. The sector market capitalization stands lower at Rs17.2 billion, since all but six cement stocks are trading at varying discounts to their par values.
Analysts’ outlook for the fourth quarter has been promising, based on improved local demand, enabling increase in average plant utilization rate to 70 per cent after April ‘02, from 61 per cent in the first nine months. However, the event that was looked upon as a major catalyst for cement sales and profitability has eluded the industry so far: Exports to Afghanistan.