The country’s cement sector posted a stellar increase in profits of 100pc QoQ as profit after tax stood at Rs12.5bn for 3QFY21 against Loss after tax (LAT) of Rs1.8bn for 3QFY20 while gross margins stood at 30pc against 4pc and 25pc for 3QFY20 and 2QFY21 respectively.
The increase in profitability was supported by an exuberant increase of 23pcYoY in dispatches as the government has provided various incentives to the construction sector in order to kick start economic growth post-COVID-19 related disruptions.
Shahrukh Saleem, a senior investment analyst at AKD Securities Limited said that additional impetus was provided by 18pcYoY increase in retail price in North as post conclusion of the expansion cycle, price competition among local manufacturer came to an end. “Resultantly, gross margins of our universe stood at 30% for 3QFY21 against 4/25% for 3QFY20/2QFY21. An implication of increased capacities and dispatches is an increase in below the line expenses which witnessed an increase of 17/2% YoY/QoQ where the major increase was witnessed in distribution costs which increased by 16pcYoY.” the senior investment analyst added. Decrease in interest rates provided great relief to the sector with finance cost decreasing by 47pc and 8pc in terms of YoY and QoQ respectively to Rs1.4bn while interest cover improved to 12x in 3QFY21 against 0/6x for 3QFY20/2QFY21. Saleem added that for 9MFY21, PAT stands at PAT of Rs22.2bn against LAT of Rs2.6bn while gross margins increased to 25pc against 7pc for 9MFY20 on the back of players engaging in severe price competition during 9MFY20 in the backdrop of North witnessing a significant increase in capacity.
Shahrukh Saleem, a senior investment analyst at AKD Securities Limited said that company-wise, Lucky Cement Limited (LUCK) continues to maintain the status of lowest cost producer with the highest gross margins from our universe of 36pc while LUCK also posted the highest QoQ increase in profitability as dividend from LMC drove unconsolidated profit to Rs7.2bn. “We maintain our optimism on the local cement sector as local cement demand remains upbeat (up 19pc for 10MFY21) which is expected to continue supporting the pricing power of local players as they look to pass on the impact of increasing coal prices,” Saleem maintained.
Meanwhile, Pakistan Bureau of Statistics (PBS) has revealed that the production of cement in the country has witnessed 25.14 percent increase during the first three quarters of the financial year 2020-21 against the output of the same period of last fiscal year. As many as 37,620 tonnes of cement was manufactured during July-March (2020-21) as compared to the production of 30,063 tons manufactured during July-March (2019-20), showing growth of 25.14 percent, according to PBS official data.
Meanwhile, on year-on-year basis, the production of cement also rose by 57.24 percent, from 2,996 tonnes in March 2020 to 4,711 tons in March 2021, it added.
Outlook:
The senior investment analyst added that coal prices continue to sustain the high ground, currently trading around US dollar 101 per ton and have increased by 47pc since November last year however except for Rs30-40 per bag increase in prices witnessed during January this year, local manufacturers have not passed on the increase in cost and with 4QFY21 halfway through, we expect margins to decline for 4QFY21. According to our channels checks, local players intend to pass on the costs in a staggered manner of increasing prices by Rs10-15 per bag in each phase where demand-side remaining strong is expected to continue to provide the pricing power to players.