Cement companies in upbeat mood, Pakistan

The cement companies, listed at the Karachi Stock Exchange (KSE), remained in the upbeat mood during the first half of the fiscal year due to rising construction activity in the country and exports to Afghanistan.

The cement sector took a U-turn in 2004 financial year and came out of its losses, which were accumulating due to price wars, higher financing costs and rising furnace oil prices. The companies recorded profits because of declining interest rates, lower manufacturing costs due to switching over to coal, stable prices and rising demand. 

This profitability witnessed a growth in the first half of 20o4-05 financial year as a result of the continuation of positive factors such as stable prices (which, in fact, increased in the first half of the current financial year) and stronger demand. 

In the first half of 2005 financial year, companies’ profit after tax was Rs 3.2 billion which shows a growth of 17 percent (Rs361mn) when compared to the first half of 2004 financial year PAT of Rs2.7billion. 

This growth is both due to higher demand coupled with higher gross and net margins.  Manufacturers were able to maintain and increase prices as the understanding within the cartel, which had developed earlier was maintained during the period. 

Average retention price has increased by 9.7 percent during the first half of 2005 financial year to Rs 2,906 per tonne compared to Rs 2,648 per tonne during the first half of 2004 financial year.  Average cost of manufacturing also went up due to higher coal and furnace oil prices from Rs 1,890 per tonne in the first half of 2004 financial year to Rs 1,985 per tonne in the first half of 2005 financial year. 

As the increase in retention prices was greater than the increase in manufacturing costs, gross margins of the cement sector increased from 29.6 percent in the first half of 2004 financial year to 32.6 percent in the first half of 2005 financial year. 

Cement sector earned Rs 1.47 billion in the second quarter of 2005 financial year as compared to Rs 1.74 billion in the first quarter of 2005 financial year, showing a decline of 16 percent. This was because coal and furnace oil prices increased mainly in the second quarter of 2005 financial year and the gross margins of the cement companies witnessed a decline from 34 percent to 30 percent. Similarly, operating margins declined from 30 percent to 26 percent. 

Overall net retention prices increased in the second quarter of 2005 financial year by four per cent from 2,847/t to Rs 2,972/t in the second quarter of 2005 financial year.