Daily Times

The country’s cement despatches in 3QFY21 clocked in at 14.7 million tons (-3pc Quarter-on-quarter (QoQ), +20 per cent year-over-year (YoY), and it is the second highest quarterly sales in the history of Pakistan.

The cement sector also posted record profits of Rs18.4 billion in 3QFY21, up 63pc QoQ during the same quarter last year the sector posted a loss of Rs5.8 billion. On a sequential basis, profitability increase was led by 209 percent QoQ increase in profits (unconsolidated) of Lucky Cement (LUCK) and 78pc QoQ increase (unconsolidated) in earnings of DG Khan Cement (DGKC).

Shankar Talreja, a deputy head of research at Topline Securities Limited, said that Lucky Cement’s profits increased due to rise in (gross profit) GP margins by 680bps and receipt of Rs2.85 billion and Rs1.02 billion dividends from the Lucky Motors Corp and ICI Pakistan, respectively. Adjusted for this, LUCK posted a 64 percent QoQ jump in profits.

“DGKC’s profits increased by 78 percent QoQ due to increase in GP margins by 120bps and receipt of dividend income from MCB Bank (MCB) to the tune of Rs1.5 billion. Adjusted for dividends in both quarters, profits of DGKC declined by 27 percent QoQ due to higher other charges and effective tax rate,” he added.

The net sales of the sector increased by seven percent QoQ despite decline in cement dispatches by three percent QoQ as retention prices in the quarter improved by 11 percent QoQ to an average of Rs350-380/bag.

Talreja said that average gross margins of the sector clocked in at 28 percent (+280bps QoQ, 2590bps YoY), highest in the last 13 quarters. Surge in GP margins can be attributed to higher volumes and improved retention prices as mentioned above.

For him, the finance cost of the sector remained largely unchanged QoQ (down 43pc YoY) as retirement in debt during the quarter was compensated by slight increase in KIBOR coupled with commissioning of different projects by companies (like coal, WHR plant) which resulted in expensing of finance cost. He maintains that Effective Tax Rate (ETR) during the quarter clocked in at 22pc, unchanged from the previous quarter.

ETR remains below the corporate tax rate of 29pc as dividend incomes received by companies are taxed at 15%, which lowers the overall tax rate of the companies. During the period under review the other operating expense increased by 50pc QoQ, in line with profitability growth. Selling and distribution costs increased by 2pc QoQ despite decline in overall unit sales by 3pc QoQ and exports by 8% QoQ. “We attribute this rise to an increase in global freight cost during the outgoing quarter,” he said.