Cement companies’ profit jumps 833 per cent

KARACHI: The cement companies saw a big leap forward as their earnings jumped by 833 per cent to Rs4.7 billion for the nine months to end-March 2009, from Rs395 million in the similar three-quarters of the previous year.

Atif Zafar, who tracks the cement sector for JS Global, wrote in his report on Monday that the growth in profitability represented an extension of the companies’ earnings in the first half of the year. The analysis included 18 out of 21 listed companies, which representing 94 per cent of the sector market capitalisation.

Analysts commented that the improvement was on the back of higher retention prices and higher rupee-based export sales, being a benefit of rupee depreciation.

Net retention prices rose by 64 per cent to Rs230 per bag (partly down for effective ‘price arrangement’ between manufacturers) and better export based revenue, owing to the rupee depreciation (21 per cent year-on-year). All that resulted in net sales growth of 74 per cent.

Gross profits depicted 287 per cent rise with gross margins increasing by 1,491bps to 27 per cent, compared to 9MFY08 gross profit margins of 12 per cent. However, 96 per cent increase in financial charges due higher average 6-month KIBOR (434bps) during the period took some gloss off the bottom-line as net margins recorded an increase of just 317bps to 4 per cent.

Overall sales despatches for 9MFY09 managed to trudge ahead by 0.6 per cent to 24.718 million tons, from 24.570 million tons in the same time last year. Local sales were down by 15 per cent to 15.789 million tons, from 18.624 million tons, but exports witnessed a commanding growth of 50 per cent to 8,949 million tons, from 5.947 million tons.

Meanwhile, analysts say that the tug of war between the cement producers and builders has intensified. The decrease of Rs40 per bag by the largest producer of cement 15 days back and a quick return to what manufacturers believe was the ‘fair price’, remains shrouded in mystery.

Builders have alleged ‘cartelisation pressure’ that pushed the company to backtrack on its lower sales prices per bag. The company denies that it was coerced to re-adjust price to the higher level by other producers, stating that it had reverted to the old price as the objective of making an inroad into the local market was achieved.