Jump: Cement companies book 26% profit boost

Robust domestic demand, uptick in margins supported earnings

KARACHI: Living up to expectations, profits of listed cement companies jumped 26% in the third quarter (Jan-Mar) of fiscal year 2016 compared to a growth of 14% in the same quarter of last year, according to an analysis of Topline Securities.

The brokerage house, in its study, considered a sample of 15 out of 19 listed cement companies, which represented 99.5% of market capitalisation of these companies.

During the quarter, earnings of cement companies grew to Rs16.3 billion compared to Rs12.9 billion in the corresponding quarter a year ago.

Gross margins stood at a record 43%, up 709 basis points year-on-year (YoY).

This handsome profit growth came on the back of higher sales (up 19% YoY) due to robust local demand, up 20%. It was also supported by a significant uptick in gross margins due to declining energy and power costs.



Domestic demand remained strong because of an increase in the number of private housing projects and intensified construction activities under the China-Pakistan Economic Corridor (CPEC) programme. This was also reflected in a 39% YoY credit growth in the construction sector in February 2016.

After falling for the last two quarters, exports remained almost flat in the third quarter of fiscal year 2016, primarily in the wake of improved sales to the Afghanistan market, which comprised around 43% of total exports and rose 39% YoY.

In the first nine months (Jul-Mar) of fiscal year 2016, earnings of cement companies grew 30%, supported by a 13% growth in sales as a result of higher domestic demand and firm prices.

Moreover, gross margins improved 802 basis points to 40.9% as selling and distribution expenses fell 16% on the back of lower transportation costs due to reduced oil prices.

Besides the rising local sales volumes, stable market prices and declining input costs - coal prices were near 11-year low of $53 per ton according to the Richards Bay Index and power tariff was down 20% YoY - were likely to support margins of cement manufacturers in the near future, the report said.

“We downplay any risk of a price war amongst cement manufacturers as the industry is already operating at around 85% of capacity. If the industry continues to grow at the same pace, we expect demand to outpace supply in the near future,” it added.

Published in The Express Tribune, May 10^th, 2016.

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