After receiving 32 percent downward revision in profitability during the first quarter of the current financial year, the profitability of the local cement sector remained under pressure for the second quarter, leading to an overall 62 per cent decline in profits during the first six months of the financial year 2007.
With cement prices further falling in the October-December 2006 period, it was expected that the second quarter of the financial year 2007 would be worse for the cement sector than the first,” said Atif Malik, an analyst at Jahangir Siddiqui Capital Markets Limited.
During the first quarter cement sector, profits went down by 32 per cent. The cement sector, in its recently announced first-half results, has shown a 62 per cent decline in its profitability.
The profitability analysis of listed cement sector of Pakistan during first half of the 18 out of the total 21 listed cement companies represent 91 per cent of total Rs 105 billion or $2 billion cement sector’s market capitalisation, in which Dandot, Mustehkam and Pakistan Cement were not included as their results have yet not been announced.
The cumulative profitability of the companies represent 91 per cent of the listed cement sector as capitalization stands at Rs 2.21bn or $36m, depicting a decline of 62 per cent over first half of financial year 2006 combined profits of Rs 5.81bn or $96m.
Malik said despite rising sales volume, net sales declined by three percent mainly due to lower cement prices, whereas, gross profits went down by 46 per cent on the back of lower retention prices by producers. In the first half of the current financial year, with new capacities piling up, a price war situation prevailed in the market, which led to lower retention prices. Resultantly, gross margins plunged.
On per tonne basis, the under-review companies’ net retention prices in the first six months arrived at Rs 2,944/t, 19 per cent lower, while cost of sales rose by four percent to Rs 2310/t. Thus, with falling retention prices and increased cost of manufacturing, per ton gross profits depicted a healthy decline of 55 per cent at Rs 634/t.
However, he said, for the third and fourth quarter of current financial year, cement companies are expected to post better results, mainly due to rising cement prices, which from Rs 170 per bag in the second quarter of the current year are now up in the range of Rs 220 per bag to Rs 240 per bag. Also, the summer season is arriving, which is a peak season for cement demand.