Pakistan listed cement sector has posted better than expected 40 percent (QoQ) earnings growth in October-December 2014 as net profits grew to Rs 12.7 billion as compared to Rs 9 billion in the previous quarter ending Sep2014. According to Topline research report on cement sector's profitability, profits grew due to strong local demand, falling input costs, declining financial charges due to smooth deleveraging, increase in 'other income' and lower effective tax rate.
Cement manufacturers posted net margin of 24 percent, which is the highest over the last nine quarters. While cement sector profit posted a 14 percent (YoY) growth in 1HFY15 to Rs 22 billion as compared to Rs 19 billion 1HFY14. "Our sample includes 14 out of total 19 listed cement companies which represent 94 percent of the total listed cement companies' market capitalisation," said Nabeel Khursheed analyst at Topline.
Amongst sample companies, PIOC, DCL, DGKC FCCL and MLCF were the star-performers, depicting bottom-line growth of 150 percent, 99 percent, 93 percent, 77 percent and 63 percent respectively. Market leader LUCK depicted bottom-line growth of 10 percent, he added. With start of mega construction projects, cement sector was able to post top-line growth of 10 percent in 2QFY15 to Rs 53.3 billion as against Rs 48.5 billion in 1QFY15. The prime growth driver remained 14 percent rise in local cement dispatches as it rose to 7 million tons in 2QFY15 versus 6 million tons in 1QFY15.
Exports however declined by 2.6 percent to two million tons versus 2.06 million tons in 1QFY15 due to lower dispatches to Afghanistan. Going forward, higher disposable income, due to lower inflation, should help increase private expenditure on construction and housing as evident from mega housing schemes launched by Bahria, DHA and UAE's Emaar, he predicted.
Declining international oil and coal prices have resulted in lower manufacturing cost for cement manufacturers as energy constitutes 55-60 percent of total cost of goods manufactured. As a result, sector's gross profit margins improved by 240bps to 36 percent in 2QFY15. Moreover, reduction in the leverage of the cement sector translated into 24 percent reduction in financial charges to Rs 854 million. "With economic recovery in Pakistan, we expect average GDP to grow at 4.5-5.5 percent in next three years, which could lift local cement sales by nine percent on average annually to reach 34.1 million tons per annum by FY17 and exports to eight million tons per annum," he said. At that time, capacity utilisation level of the industry was likely to reach 94 percent, he added.
Comments
Comments are closed.