The combined profit of cement sector (16 companies representing 92 percent, 88 percent and 86 percent of the listed sector’s market capitalisation, dispatch volumes and capacity levels, respectively) has declined by 56 percent to Rs 5.3 billion in FY07 as compared to Rs 12.3 billion in FY06.
Leading the profitability track with wide margins, Lucky Cement alone took target slice of 47.7 percent of FY07 profitability. DG Khan Cement with 30.4 percent, Attock Cement 14.9 percent, Fauji Cement 12.1 percent and Cherat Cement with 3.4 percent took up rest of the sector’s profit during the year.
"The cement sector’s decline in profitability during FY07 can be attributed to a number of factors leading most of the manufacturers to the red zone", Khurram Shehzad of Invest Capital & Securities said and added that there were three major reasons behind the plunge in sector’s core earnings during the year.
First and foremost, significantly slim retention price by 32 percent on year-on-year basis, due to severe price was among manufacturers owing to supply overhang observed during most part of the year.
Secondly, despite staggering volumetric growth, increased cost of sales by 37 percent rise mainly driven by fuel cost, led to reduce gross profit (by 49 percent on YoY), resulting in severely wounded gross margins. Finally, and high base-effect of FY06’s profitability were also observed as the dampers to the bottom line in FY07.
He said that the cement sector’s top line rose by a meager 2 percent on year-on-year basis to Rs 49.6 billion in FY07 against Rs 48.8 billion in FY06 with Lucky Cement and DG Khan Cement topping the list by securing 16 percent share each.
Maple Leaf Cement was also among the top three taking double-digit share of 11.5 percent in FY07. Dispatches have increased from 12.7 million tonnes in FY06 to 19.0 million in FY07, translating into a demand growth of 49 percent on YoY basis (local 41 percent and exports 123 percent).
This made up 79 percent of the total industry dispatches. The total industry demand grew by 32 percent during the same period. The top-five producers remained Lucky Cement, DG Khan Cement, Maple Leaf Cement, Bestway Cement and Fauji Cement during FY07.
On the other hand, JS Global Capital’s research report said that the combined profit of the cement sector (13 companies out of total 22 cement companies representing 81 percent of total market capitalisation of the cement sector and 70 percent of the total cement industry’s installed capacity) has declined by 51 percent to Rs 5.7 billion in FY07 as compared to Rs 11.6 billion in the corresponding period in FY06.
"Although the total cement dispatches of the industry increased by 32 percent in FY07, low retention prices was the primary reason behind their lower profit for the year", Bilal Hameed at JS Global Capital Limited said.
Despite improvement in cement sales by a massive 40 percent of the sample companies, net sales depicted just one- percent growth mainly on account of lower retention prices. Resultantly, gross margins with increased raw material cost declined to 22 percent in FY07, he added.
Amongst 13 sample companies, out of total 22 cement companies representing 81 percent of total market capitalisation of the cement sector and 70 of the total cement industry’s installed capacity, Lucky Cement was the only company which depicted positive growth in its FY07 earnings as it posted a considerable profit growth of 32 percent mainly as a result of capacity expansion that came online in FY07 and one-time excise duty refund. The earning per share of Lucky Cement increased to Rs 9.67 in FY07 as compared to Rs 7.35 in FY06.
In the 13 listed companies, Al-Abbas Cement witnessed Rs 0.78 loss per share in FY07 against an earning per share of Rs 0.10 in FY06; Attock Cement’s earning per share stood at Rs 11.04 in FY07 against Rs 12.59 in FY06; Bestway Cement EPS Rs 0.20 against Rs 4.76; Cherat Cement Rs 1.93 against Rs 5.63; DG Khan Cement Rs 6.40 against Rs 9.54, Fauji Cement Rs 1.74 against Rs 3.25; Fecto Cement Rs 0.42 against Rs 9.15; while Javedan Cement witnessed a loss per share of Rs 1.61 against an earning per share of Rs 6.15.
Kohat Cement’s earning per share declined to Rs 0.48 in FY07 against Rs 7.78 in FY06; Maple Leaf Cement 0.11 against Rs 2.85; Mustahkam Cement Rs 2.07 against Rs 7.22 while Pioneer Cement witnessed a loss per share of Rs 0.55 in FY07 against an earning per share of Rs 3.98 in FY06.
Net retention price of the sample companies in FY07 arrived at Rs 2,761 per tonne, 28 percent lower versus that in the previous period. On the other hand, cost of sales declined by 3 percent from Rs 2,219 per tonne to Rs 2,149 per tonne. Hence, mainly on the back of reduction in retention prices, gross profit declined by 62 percent to just Rs 612 per tonne from Rs 1,610 per tonne in FY06.