Cement sector witnessed a steep decline of 87 per cent in its profitability during the first quarter of current fiscal year against the corresponding period of last year.
Total profit of cement sect or stood at Rs 252 million during the period under review as compared to Rs 1.88 billion in the corresponding period a year ago, according to research report based on 19 major companies of cement sector released on Thursday by InvestCap.
Khurram Schehzad, Senior Financial Research Analyst at InvestCap said that the cement sector had a severe dent in gross margins, which were slashed to 12 per cent despite skyrocketing volumes resulting in only six percent rise in the top line of the sector due to decline in retentions.
Citing the reasons for this decline in profits, the report points out that there are three major reasons behind this huge slump in sector’s core earnings. First, the most profit-sensitive one was considerably slim retention prices due to continuous supply-overhang coupled with rainfalls resulting in acute fluctuation in price levels of the manufacturers, observed during most of the quarter.
Secondly, staggering volumetric growth of about 34.5 per cent during the first quarter, increased cost of sales by energy and depreciation cost due to expansion led to squeezed gross margins by 1800 bps year-on-year, which resulted in decline in gross margins.
And finally financial charges mounted by 58 per cent year-on-year and high base effect of first quarter 2007-08 profitability were also observed as the aggravators to the bottom line. The analyst said that cement exports are contributing to the dispatch growth, however, overall volumes are expected to take a slight breather due to the winter season and the high base effect of last year. staff report