Cement companies profit rises 32 percent, sales 21 percent

Cement companies showed improved performance during the first nine months of the current fiscal year, where their net income recorded a boost of 32 percent while sales including exports registered an increase of 21 percent 10 months to April 30. The cement sales during the 10 months of the current fiscal year showed a rise of 19 percent to 12.1 million tons, from 10.2 million tons. At the end of the first 9-months of FY05 cement companies profit after tax (PAT), based on results of 18 companies, stood at Rs 5.0 billion compared to Rs 3.8 billion for the corresponding period of last year. This represents an increase of 32 percent.
Profit before tax (PBT), on the other hand, grew massively by 59 percent to Rs 6.5 billion compared to just Rs 4.1 billion last year. Lower growth in profit after tax compared to before tax profit is mainly due to lower effective tax rate in July-March FY04.
The cement export crossed the 1 million tons mark and during July to April period showed an increase of 40 percent to 1.272 million tons, as compared with 906,634 tons of the same period last year.
Atif Malik, research analyst from Jahangir Siddiqui Capital Markets Ltd, said that overall, high profitability growth is attributable to increase in net sales, which reached Rs 27.4 billion mark due to continuously growing demand, and upsurge in gross margins, which increased from 28.5 percent in 9-month FY04 to 30.9 percent this year. Better margins primarily ensued from high retention prices and economies of scale being achieved by the cement industry.
On a per ton analysis, we see that the net retention price increased in 9-months of FY05 by 11 percent from Rs 2,634 per ton to Rs 2,928 per ton, whereas, cost of manufacturing also increased by 7.4 percent from Rs 1,884 per ton to Rs 2,024 per ton.
Greater percentage increase in retention price compared to that of cost of manufacturing led to a healthy increase in per ton gross profit, which increased by 20 percent. Muhammad Fawad, research analyst from Alfalah Securities said that cement prices in both the local and external market rose due to (1) higher demand and impact of increased production cost.
"We expect full year cement demand growth to reach 23 percent implying a 107 percent local capacity utilisation for the remaining two months", he said.
The earnings of the sector will show further growth in the fourth quarter ending June 30 owing to better retention prices, improved volumes and stable to declining production cost.