The cumulative profit of listed cement sector companies increased to Rs 3.7 billion in the nine months of FY09 depicting a massive growth of 833 percent over the corresponding period in FY08 of Rs 395 million.
"Although total dispatches were down 0.4 percent, net retention prices up 64 percent to Rs 230 per bag (partly down to effective price arrangement between manufacturers) and better export based revenue amid rupee depreciation (21 percent on year-on-year basis) resulted in net sales growth of 74 percent", Atif Zafar, an analyst at JS Global Capital, said.
As a result, gross profits depicted 287 percent growth with gross margins increasing by 1,491bps to 27 percent, compared to the nine months in FY08 gross profit margins of 12 percent. However, 96 percent increase in financial charges due higher average 6-month KIBOR (434bps) during the period took some gloss off the bottom line as net margins recorded an increase of just 317bps to 4 percent, he said.
He said this massive earnings growth has been largely due to price arrangement between companies in the local market to keep prices high. However, local demand-supply dynamics do not suggest such high prices would continue. Moreover, the export market only looks attractive for the short term as new capacities could soon come online in the Middle East along with weak domestic demand on the back of low PSDP and economic growth.
"Our sample includes 18 out of total 21 listed companies, representing 94 percent of cement sector market capitalisation. Moreover, we have removed one-time impairment loss on acquired goodwill recognised by Javedan Cement of Rs 3 billion", Atif said.
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