Profitability review 1QFY19-20 of nine top Pakistan companies

Profitability review 1QFY19-20 of nine top Pakistan companies
01 November 2019

Pakistan research house Spectrum Securities Ltd, while reviewing nine top cement companies' performances for the 1QFY19-20, has concluded that cement sector continues to be in turmoil, due to the shrinking construction activities, higher interest rates and excess installed capacity. Therefore, during the first quarter of FY19-20, the  sector posted a net loss.

Analysts from Spectrum Securities Ltd observed that in the 1QFY19-20, industry sales fell by six per cent YoY to PKR52.734bn (US$338.5m), although cement dispatches recorded a growth of 2.6 per cent YoY to 11.132Mt (exports increased by nine per cent YoY to 1.96Mt). However, a fall in cement prices in the south by four per cent YoY to PKR551/50kg bag impacted revenue growth. Similarly, exports sales also contributed negatively in revenue due to discounted prices offered by cement companies to international buyers.

During 1QFY19-20, the bottomline of the industry has posted a loss of PKR1.112bn as compared to a profit of PKR7.732bn in the same period last year. As the cement sector is highly leveraged, financial charges increased by 134 per cent YoY due to the hike in interest rates. Moreover, increases in fuel costs also escalated distribution cost by 24 per cent YoY.

Analysts foresee that the local cement demand is likely to remain lacklustre in the medium-term as the slow economic recovery is restricting consumption. However, moving forward, the easing monetary policy would fuel economic growth and cement demand from the next fiscal year.

Moreover, the Prime Minister's housing scheme and the expected start of dam construction should enhance cement demand further. The cement sector is highly leveraged and experts expect that the decline in interest rates and repayment to reduce financial cost. The FWO deferred the implementation of the axle load policy on M-9 motorway for one year which reduces the transportation cost of the sector.

Published under Cement News

Tagged Under: Pakistan cement demand