Low exports, dependence on local sales hurts cement sector

April 26, 2010

KARACHI: Cements company earnings are down in the third quarter of the fiscal year 2010.

Third quarter earnings of Lucky and Attock Cement went down by 42 per cent and 15.26 per cent respectively compared to the same period last year. Cement grew well last year due to higher exports and higher international prices companies were selling at. However this year the cement companies had to rely on domestic market sales. This led to the companies not selling enough and selling at lower prices. This corrected the anomaly of last year’s cement company margins, according to Topline analyst, Furqan Punjani, who termed the previous year’s growth as ‘abnormal’. Analysts do agree that Lucky cement will still recover.

Topline bases this on the fact that Lucky is the largest cement company in Pakistan and will be able to handle bulk transports better than the others and because the company will also be generating income from selling electricity to KESC. Lucky Cement has also signed a Memorandum of Understanding with M/s Oracle Coal fields to supply it with indigenous coal. This will reduce the import cost and risk against rupee depreciation, according to Furqan Punjani. KASB global thinks that Lucky cement will recover their earnings over the next 12 months.

The earnings loss this quarter faced by Lucky was compounded because of energy and power outages at their South plant which should now be finished because of generators and gas powered generation. That and the inclusion of Lucky in the export freight subsidy scheme from the fourth quarter of the fiscal year 2010 should, According to KASB analyst, Farrah Marwat, help KASB recover their volumes and help cement’s domestic price and exports recover by the next quarter. KASB also points out that Lucky is trying to rationalise costs and have initiated a heat recovery programme that should help them decrease raw material input prices. According to KASB the recovery could be faster if the increase in domestic demand, which has been growing by 18 per cent every year, continues.


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