PAKISTAN: Cement industry gets back on track

he cement sector switched to a profit of Rs2.54 billion in financial year 2011 against a loss of Rs2.59 billion in fiscal 2010.

Sales volume declined but a 32% increase in prices was enough to push the industry into profits, said Summit Capital Research Analyst Muhammad Sarfraz Abbasi.

Sales revenue of cement manufacturers recorded an upsurge of 14% to Rs115.6 billion in fiscal 2011 against sales of Rs101.8 billion in fiscal 2010.

Summit Capital analysed 14 listed companies of the cement sector which account for around 89% of the total sector.

Main contributors to the growth were mid-cap companies including Kohat Cement, Pioneer Cement, Fauji Cement, Dewan Cement and Mustehkam Cement.

However, total industry sales declined by 8% to 31.36 million tons due to slowdown in domestic construction activity, added Abbasi.

Financial charges of the sector also increased sharply by 11% to Rs10.46 billion against Rs9.40 billion posted in the preceding year.

Coal prices likely to stay stable

The analysis revealed that average cost of sales stood at 84% of the sales with energy being the main contributor.

Coal prices in the international market have been on the rise since April 2009 when they stood at $68 per ton and then gradually peaked at $142 per ton in January 2011. Coal is a major energy source in cement manufacturing.

Selling price surges

Cement prices are constantly on the rise, according to industry data. In the northern part of the country, prices have increased by 31% to Rs417 per bag on a yearly basis whereas in the south prices have increased by 24%.

Impact of the increase in selling price is reflected in prices of cement stocks trading at the Karachi Stock Exchange (KSE) as Lucky Cement and Attock Cement outperformed the market by posting returns of 10.24% and 19.87%, respectively, in the last month compared with the benchmark KSE 100-share index rising only by 6.32%.

Outlook

The current financial year is looking good for the industry as margins are intact with rapidly increasing prices coupled with 58% higher allocation to the Public Sector Development Programme and reduced levies, said Abbasi.

Initiation of construction activities, especially in flood-affected areas, might prove to be another source of recovery in sales, he added.